First, they expand the possibility frontier of the technology of collective decisions and can be designed to raise the cost of those decisions deviating from pre-announced contingent paths. Second, they are set up explicitly to exercise a degree of discretion - “constrained discretion” - subject to the broad objective of price stability. Discretion is inevitable because of the need to learn about the economic environment. Institutions thereby become repositories of experience and knowledge which they communicate to society as a whole. III. Case Study I: Exchange rate regimes in Brazil and the UK  I want to illustrate the importance of institutions and the credibility of their stability by three case studies. My first example concerns the collapse of exchange rate regimes in Europe and Latin America. It demonstrates that economic institutions require a broad base of political support if financial markets are to believe that those institutions are likely to survive. For a while fixed exchange rate regimes enjoyed a degree of support in both Europe, with the Exchange Rate Mechanism (ERM), and Latin America. But experience shows that, in terms of credibility in financial markets, the design of those policy regimes was less important than the fact of their having broad political support. Brazil in 1998-99 is a case in point. In 1998 Brazil operated a crawling peg exchange rate regime.
Thus, notwithstanding our sense of urgency, we are heading here for an evolutionary change: Athena in her helmet will not spring full-grown from the head of Zeus! And, as with all transitions from one era to another, we can expect risks and uncertainties to persist for some years to come. This makes it all the more urgent to get to work on this new architecture right away. Initial steps for a new architecture In fact, a number of significant steps are already under way. At its April meeting, our governing body, the Interim Committee (of Ministers and Central Bank Governors of IMF member countries), set the broad agenda for the IMF’s own work - and its work with others - for the near future. Five areas have been given priority by member governments: •  1  The central role to be played by the IMF in crisis prevention through its surveillance and its role in encouraging members to strengthen their macroeconomic policies and financial sectors.1  Of course, it is clear that for IMF surveillance to be effective, member countries must provide timely, accurate, and comprehensive data to the Fund. The Interim Committee underscored members’ obligation in BIS Review 43/1998  -4-  The Interim Committee suggests that the Fund intensify its work in surveillance of financial sector issues and capital flows, and focus on the risks posed by potentially abrupt reversals of capital flows, especially those of a short-term nature.