What role do you think currencies, including the yuan, should play in the global rebalancing? Noyer: It is up to [China] to assess exactly what part the exchange rate can play in the rebalancing. But appreciation of the yuan can help [China] enhance domestic consumption and dampen some of the effects of the rise in commodity prices. BIS central bankers’ speeches  1  WSJ: In order to address currency misalignments, shouldn’t the G-20 call more strongly for increased currency flexibility across the board? Noyer: The G-7 has been monitoring excessive currency fluctuations. But the world having changed and G-7 economies no longer being the dominant ones, should we adopt the same rules as we did during the ‘70s? We need to find out how to manage the system. How can we monitor capital flows, and how can we avoid the risk of capital controls hampering global trade? We need to give a clear mandate to the IMF to monitor the capital account. It would be useful to have a clear set of rules. The IMF can be an independent assessor of policies and give advice on the best course of action. WSJ: What lessons have you learned from the crisis?
How should we view financial bubbles, what causes them and what can we do about them? What drove the latest bubble, what can we learn from it and what is needed more generally to make stock markets function more efficient? BIS Review 50/2002  1  Nothing new about periods of undue optimism One important lesson is that in a deregulated world, waves of excessive due optimism can arise and result in pronounced financial cycles. In the 1990s there were several periods of financial turbulence. One was Sweden’s own bank and currency crisis about a decade ago. At the same time there were problems in other countries and turbulence in the European exchange rate mechanism (ERM). That was followed by the crises in Asia and Mexico, the problems with the major hedge fund Long Term Capital Management, Russia’s suspension of payments, the IT bubble and, most recently, the difficulties in Latin America. Further back, there have likewise been periods of excessive optimism and financial crises. Here, briefly, are the most spectacular items in Sweden’s economic history. •  The first real financial crisis in Sweden occurred back in 1857. It mainly involved the real estate market and obliged the government to support the banking system for the second time in our history. The first occasion had been in 1668, when the Palmstruch Bank was taken over by parliament and ultimately became what we now call the Riksbank.