Along the same line, the Taylor rule was, obviously, used before John Taylor estimated it. Regardless causality, monetary policy and central banking have changed significantly. The movement toward granting central bank independence around the world has been a positive one. Of course, this comes with the challenge for central bankers to demonstrate that this is really a good thing, something that certainly has been questioned in some countries during the recent crisis. Although central banks were created to address problems in the banking sector, over time, their objectives moved to more general aspects such as economic development or growth. Then, since the 1980s, and with the success of the Great Moderation, central banks increasingly, and rightly so, focused on price stability. Unfortunately, financial stability, another issue at the core of central banking, was overlooked. Monetary policy has abandoned money supply and exchange rates as nominal anchors, to target directly inflation and anchoring nominal variables via inflationary expectations. To reinforce credibility and to gain legitimacy, communication has become central to the conduct of monetary policy. Many challenges remain; in particular how to incorporate the financial stability goal into policy making, but the evolution of policy making has been enormous, in particular for emerging economies. However, progress in economics has not been completely successful, and many challenges remain to make economic analysis more helpful to guide policies, and that is the issue I want to discuss next.
Currently, we have a semi-automated real-time delivery versus payment (DVP) system in place. It is a stop-gap measure but it serves as an important infrastructure in the settlement of the scripless government bonds. The system, when fully developed, will be supplemented by the intraday liquidity facilities and queuing mechanism, employing the latest digital signature technology to ensure secured and smooth real-time delivery and payment transactions. We are entering an era when capital flow across borders can only become more volatile than in the past. And we still have fresh memories of how disruptive it was before the crisis. In fact, it was a major cause of the crisis. How do we go forward? How do we guard against this? The work on the new International Financial Architecture seems to be very much lacking in the area of the behavior of key players, especially the highly leveraged institutions. In the eyes of the large  3  BIS Review 30/2000  Western countries, such issues have somewhat lost their urgency since the event surrounding the Long-Term Capital Management (LTCM) left the headlines. In the absence of such rules, it appeared that emerging markets can only look to our own selves for protection. We have to help ourselves. A well functioning bond market is an important tool in this respect. It will act as a reservoir that absorbs capital inflow, and channel it to good use.