We can certainly expect that data quality and analytical frameworks will continue to improve over time. But our understanding of future crisis dynamics will never be perfect. Far from it. This means that we must be prepared to change course when required and acknowledge errors in judgment sooner rather than later, even if it means re-evaluating wellreasoned positions. This brings me to my second point on agility. Financial crises are inflection points of a cycle which materialise in the least predictable manner. This demands a high degree of agility of policymakers and the financial system to adapt to the new operating reality. Such agility is derived from crisis management frameworks that are well-anchored in clearly defined strategic outcomes and accountability structures, but also flexible enough to respond to a range of conditions. And critically, it requires investing in resources with deep experience and knowledge. Going back to the 1996 Everest expedition, Hall and his team had made every reasonable effort to incorporate comprehensive risk management and contingency planning into the preclimb plan. As things turned south, it became clear that the team was unable to respond quickly to the dynamic situation. Outdated and inefficient radio systems led to a communication breakdown of vital information. Physiological, psychological and technical readiness of some of the climbers was also in question. Their inability to respond fluidly to changing conditions created an overdependence on key resource persons. Combined with lack of experience to deal with a series of new challenges, leaders were incapacitated and team dynamics disintegrated quickly.

Asset prices, on the other hand, display much greater volatility, and the collapse of property prices has created problems for some homeowners and financial institutions, despite presenting opportunities for others. Plainly, stability is preferable to volatility. But the plunge in prices has much more to do with the earlier exuberance, plus structural influences, such as growing cross-border integration, than with the exchange rate. Although the current deflation may undoubtedly be painful to some, before we rush to argue that deflation could be avoided if only we had a floating exchange rate, let's pause to reflect on the Japanese experience. At times, Japan experienced deflation accompanied by upward pressure on the yen, which only served to exacerbate the deflation. It may not be appropriate to draw too close an  BIS Review 17/2002  7  analogy, given the contrasting economic circumstances between the two economies, but it is worth noting that, with a fixed exchange rate, deflation, if it continues, eventually restores any lost competitiveness and will then bottom out (assuming no significant continuing deflation overseas). In other words, in the Hong Kong context the peg in effect sets upper and lower bounds to the inflation rate relative to the rate in the United States. In sum, the peg has certainly not been the only contributor to deflation, and such contribution as it has made, has probably not been severe. The presence of deflation does not itself make a compelling case for altering the exchange rate regime.