Even the rescue operations undertaken in the US in order to protect systemic stability have been accompanied by some form of penalty for the managers as well as the shareholders who had not paid enough attention to their behaviour. It is also important to minimise regulatory changes that could induce investors to cover up their losses, especially during an adjustment of market prices, as this could weigh on transparency and market confidence. It is surely desirable to support long-term as opposed to speculative investment, and protect long-term investment from the perverse effects of market volatility, but this should be accompanied by supervisory measures that would certify that the investment in question is really a long-term one and is not subject to liquidity risks. 2  See, for example, D. Irwin (1998): “The Smoot-Hawley Tariff: A Quantitative Assessment”, Review of Economics and Statistics, 80, 2, pp. 326-334. 4  BIS Review 61/2008  Let me now turn to the things that should be done. Also in this case I would like to highlight four of them. Three of them involve actions at European level, as either the competence has been transferred to that level or the international partners are of such large size that it would be futile for individual European countries to address them separately. A first important step has already been taken: it is the euro.
The recent price increases of agricultural products should make it easier for the EU to make some concessions on the Common Agricultural Policy, in order to eliminate the subsidies which tend to distort international prices. This would be an advantage for European producers and consumers alike. Regarding currencies, it is important to continue talking with those countries which still peg their currencies to the US dollar, although their economies show a higher growth rate and a strongly positive balance of payments. Pegging to the US dollar slows down the adjustment of global imbalances. A speeding-up of the appreciation of the exchange rate of the yuan visà-vis the US dollar as well as the euro would be in the interest not only of the international community, but of China itself. In the past 12 months, the exchange rate of the Chinese  BIS Review 61/2008  5  currency has gained approximately 9% vis-à-vis the US dollar, while losing about 3% vis-àvis the euro. Only in the past months have markets experienced the inverse process, with the yuan gaining also against the euro. The appreciation of the yuan would allow China to effectively counteract internal inflationary pressures and to reduce the balance of payments surplus, which fuels the accumulation of global imbalances. The increase in food prices should ease fears that an appreciation of the yuan could penalise the income of rural areas, which are still quite sizeable.