27 For this reason, I believe that to alleviate fears about excessive meddling of governments in private companies, a SWF code of conduct will have to set the limit for individual stakes at a level significantly below the typical threshold of a controlling minority, let alone an absolute majority. As long as a recipient country can be confident that a particular SWF operates in accordance with these two paramount guidelines, there is no reason to demand intricate levels of portfolio transparency from SWFs. Transparency is an attractive answer to intractable problems. But it is unlikely to solve the problems I have tried to outline here. Indeed, I fear that, in some cases, extensive transparency requirements for SWF portfolios could actually end up triggering protectionist reactions in mature markets. It is also important to remember that most stock exchanges already impose various disclosure requirements for large equity holdings in listed companies. There are, of course, a host of reasons why SWFs should, over time, become more transparent. Many of these reasons have to do with the presumed desire of the citizens of a SWF country to demand accountability. Once again, the history of central banking may provide some valuable insights here. The more independent central banks have become, the  November, 2007. McCormick moreover stressed that the US remains open and welcoming to investment from Sovereign Wealth Funds. 26  Truman (2007a). 27  As far as I know, Larry Summers has coined this term.
In my view, a future code of conduct or a set of guidelines must cover two central issues if they are to be effective. First, to quell the concerns of recipient countries with respect to politically motivated investments, a code of conduct must contain governance prescriptions that ensure that the investment decisions of SWFs are not driven by political objectives. I believe the institutional design of modern central banking can offer some clues as to the appropriate form of these governance prescriptions. Central banks and SWFs obviously pursue fundamentally different objectives. But, in principle, they are both at risk of being hijacked by governments for political aims. In the case of central banks, this problem has been successfully addressed by the adoption of an institutional design based on two powerful features. Central banks have a clear mandate, typically focused on or around price stability. Moreover, they have generally been given statutory independence from governments in pursuing their mandate. This simple institutional design has become best practice and has made an important contribution to keeping politics largely out of monetary policy. Second, to preclude a resurgence of state ownership in our economies, SWF guidelines need to spell out upper limits to investment stakes in foreign private companies. It is difficult to determine what such limits should be. As I alluded earlier, it is not just a matter of preempting majority stakes of SWFs in foreign companies. “Cross-border nationalisation” of private companies is simply the most extreme version of a broader unwelcome trend.