The players in financial markets had found ways of getting round the regulations, which in some cases had thereby become virtually toothless. In Sweden, for example, the capital controls had gradually lost much of their bite; companies were able to take up exchange positions, for instance, by shifting trade credits over time. There was also a growing awareness that economic growth would benefit from fewer controls. The interventionist line of economic policy had not been particularly successful. The pace of deregulation varied from country to country and the process was rather protracted. Britain and  1  BIS Review 52/1999  the United States led the way. Sweden was one of the last countries to abolish controls on crosscountry flows of short-term capital. Since the 1970s, financial market turnover has risen markedly and is now very much larger than the flows generated by global cross-country trade in goods and other services. According to the latest BIS study, from 1995, global exchange market turnover, for instance, was 1200 billion dollars, which is approximately five times the value of Sweden’s annual GDP. The figure is roughly twice the level at the end of the 1980s. A new BIS study, for 1998, is due next week and can be expected to show a further increase in global exchange market turnover. Equity and bond market turnovers have also risen rapidly. To some extent, the nature of the flows as well as the players in international financial markets have changed.
The standard for countries wishing to participate in the international capital market—the Special Data Dissemination Standard—is being revised to give a better account of the level of foreign reserves and the debt position in individual countries. At country level, moreover, a code for monetary policy transparency and measures for maintaining financial stability is being drawn up by the IMF together with the BIS, central banks, supervisors, the World Bank and the OECD. A fiscal policy code is already in place. 4. Managing future crises Even with these measures, we have probably not yet seen the last financial crisis. A readiness for the management of future crises therefore needs to be created. A central issue in international discussions is the distribution of risks among the parties concerned. While the IMF has been provided with additional financial resources, it neither can nor should be prepared to contribute the main part of what may be needed in a crisis. This is because expectations that any costs will always be carried by someone else can result in an overall increase in exposure to risks, the problem of moral hazard. Such expectations are liable to drive up credit supply and demand and can influence private agents as well as national policy-makers. One way of dealing with moral hazard among private investors is to arrange for them to carry a larger share of the burden in a crisis.