There are a number of ways in which countries can attempt to deal with these risks. Following sensible macroeconomic policies is one. Making sure that banks are well regulated and well capitalised is another. A more controversial defence is to be cautious about how quickly to open up capital flows. Some countries, notably Chile, have retained controls on short-term capital inflows, to minimise their vulnerability to currency speculators.
Economists disagree about how effective such controls are in the long term.
But it is certainly sensible for countries with underdeveloped financial markets and weak banks to open their financial sectors gradually. The Thai government tried that strategy this year, hoping to buy time. It did not work. Not only are effective capital controls quite difficult to reimpose, they are also likely to undermine investors' confidence yet further. Although a single global financial market is still far off, the trend is at least in the right direction.