If the exchange rate is actually misaligned from its fundamentals, the intervention will have a better chance to amend the situation, while it will also bring financial benefits. Conversely, if these are fundamental trends, the intervention will have transitory effects at best, at a substantial cost. Since the implementation of the floating regime at the end of the last decade, we have intervened in the foreign exchange market on three occasions. In the current circumstances we have not ruled it out. It is an option we are permanently evaluating. I want to go deeper into the elements that are weighed for this decision. It is always possible to design an intervention of such magnitude that it can affect the evolution of the nominal exchange rate. But this has other consequences on the economy that need consideration. One such consequence is the need to sterilize the monetary effects of the intervention. The money that is issued to buy the dollars must be taken out; otherwise monetary policy would be subordinated to the exchange rate objective, jeopardizing the stability of growth and inflation. This sterilization pressures long-term interest rates upward, which has an impact on activity, while inducing capital inflows that render the intervention ineffective. In turn, the intervention entails high financial costs, because financing the intervention via debt costs more than the returns on the international reserves, except, as I said before, when it is grounded on the expectation of an important correction of the exchange rate misalignment.
On balance, despite the ongoing financial turmoil, I would argue that financial integration has had a stabilising influence on the global financial system for the reasons just mentioned. 18 If, however, risk assessment and management is inadequate,  16  See Kose, Prasad and Terrones (2005, 2006). 17  The financial market liquidity indicator is constructed to gauge market tightness, depth and resiliency, and liquidity risk premia. 18  The available empirical evidence on how measured financial openness affected the severity of banking crises is somewhat inconclusive. The finance literature argues for a joint consideration of efficiency and stability issues, see Ferguson et al. (2007), ch. 6.3 for references to the literature. BIS Review 9/2008  7  asset valuation is difficult and highly uncertain, and incentives are distorted, the risks to financial stability could increase. The current financial turmoil provides a clear example of how a shock to a relatively small segment of a national financial market can spread globally across borders and across other markets. As early as 2005, US sub-prime loan delinquencies started to rise. Consequently the value of credit products based on sub-prime mortgages rated lower than AA started falling.