The range of risks to be met by international business is thus far broader  3  The Economist, Global Finance Survey May 2003. BIS Review 120/2006  3  than in the past and demands permanent monitoring and continuous improvement of risk management at all levels. Financial, operational and reputational risks are all new by-products of globalisation, and we are only just beginning to come to terms with them. A survey of corporate directors quoted by the Economist in 2004 showed that a clear identification of risks is still too difficult for many well trained CEOs: 36% of the corporate directors polled actually admitted that they did not fully understand the risks faced by their company. Implications for the private sector With globalisation, your lives have undoubtedly become more difficult. Operating at a global level is infinitely more complex than the regional approach of the past. Globalisation is a challenge for business management. It entails many sources of uncertainties but also offers many vehicles to cope with risk. Can we beat these new risks? No. We must prepare ourselves to face them. We can only insure against some risks, but we cannot predict where the next blow will come from. I think that this is the most important characteristic of our times. What has increased is not our insecurity. We are, in many respects, safer than in the past. This, I hope, is what I have managed to convey to you.
By the late 1960s, fundamental misalignments between the major economies had become too great to support an international fixed exchange rate system and, reluctantly, we had to accept that the security we had taken for granted had become an unsustainable fiction: with ever growing international capital mobility, pegged regimes had become increasingly difficult to maintain. The reason is easy to understand: with capital free to move across national borders, the price of any currency is determined like the price of any other internationally traded asset – through the interaction and expectations of actors that operate beyond the borders of the issuing country and in response to variables that are beyond the area of influence of national authorities. By the early 1970s, central banks could not ignore this basic truth, and by 1976 all major currencies were floating. The Bretton Woods system was dead. In the decades that followed, many countries, especially developing ones, tried to cling to a dollar peg with periodic adjustments, in an effort to bring stability to their currencies. They were operating what economists call intermediate exchange rate regimes. The series of costly crises of the 1980s and 1990s proved how dangerous this path could be. The adjustable pegs that were able to channel thin capital flows were completely ineffectual when it came to containing the huge capital flows  BIS Review 120/2006  1  encountered in a more globalised world. By 1996, flexible exchange rates predominated in Africa, Asia, the Middle East, non-industrial Europe and the Western Hemisphere.