The worldwide gross volume of foreign exchange transactions is mind-boggling, 1.3 trillion dollars per business day and growing. Nine tenths of these transactions are reversed within a week, mostly within a day. Clearly many of these are speculative. The gross volume dwarfs the net capital transfers that carry the economic benefits globalization is advertised to bring. Most observers, West and East, public and private, in governments and international institutions, in banks and businesses, in big countries and small, now agree that financial globalization went too far too fast.
Some reforms are the responsibilities of the borrowing countries.
They need to develop the institutions that make financial markets work in the developed world, banking regulation and supervision, transparency requirements like the U.S. Securities and Exchange Commission, bankruptcy procedures. Since their international reserves are at stake, those governments should limit the hard currency exposures of banks and businesses. They should feel free to slow down inflows of liquid capital, by devices such as extra reserve requirements on new foreign deposits in their banks, used successfully in Chile. They should stress import of capital in the form of direct investment and equity. As argued above, they should let their exchange rates float.