Capital account liberalisation led to entrust international financial markets with the “disciplining” function. When it became apparent that the discipline could often lead to abrupt capital flows reversal and crisis, the international community attempted to strengthen the IMF surveillance and develop its facilities so as to pre-empt such shocks and make them more manageable. That is, basically, where we are today. Everything must be done to ensure that IMF surveillance works. But, like any “disciplinary” approach, it meets with three essential difficulties: first, diverging interests between countries; second, enforcement problems (the IMF has naturally more leverage on countries that need its help than on others). Finally there is a perception of asymmetry in IMF surveillance; it may be compounded by a more fundamental and natural asymmetry between surplus and deficit countries, when it comes to implementing adjustment measures. And, some would say, there might also be a de facto asymmetry between reserve and non reserve currencies, although, as I shall mention later, the situation is more subtle. These difficulties were apparent during the last part of the 20th century. But what makes the “disciplinary” approach almost impracticable today are the changes that have occurred in the world at the turn of the 21st century. The world today stands in stark contrast with both the Bretton Woods era and the period that followed immediately:   The first – and most obvious – difference is the number of countries that are active participants to the system and have a stake in its functioning.

Aizenman, J., Y. Jinjarak and D. Park (2010), “Reserves and Swap Lines : Substitutes or Complements ?”, NBER Working Paper No 15804 March. Backus, D., Henriksen, E., Lambert, F. and C. Telmer (2009), “Current Account Fact and Fiction”, NBER Working Paper, 15255, November. Baclet, A. and Vidon E. (2008), “The World Distribution of External Imbalances: Revisiting the Stylised Facts”, Banque de France Occasional Paper, 6, June. Bernanke, B. (2005), “The Global Saving Glut and the U.S. Current Account Deficit”, Remarks at the Sandridge Lecture, 19 March. Blanchard O., Milesi-Ferretti G.M. (2009), “Global Imbalances: In Mid-Stream?” IMF Staff Position Note. Blanchard, O., F. Giavazzi and F. Sa (2005), “The U.S. Current Account and the Dollar”, MIT Department of Economics Working Paper, No 05–02 and NBER Working Paper No 11137, February. Bracke, T., M. Bussière, M. Fidora and R. Straub (2008), “A Framework for Assessing Global Imbalances”, ECB Occasional Paper No. 78, January 2008. Bussière, M., M. Fratzscher and G. Müller (2010), “Productivity Shocks, Budget Deficits and the Current Account”, ECB Working Paper No. 509, August 2005, forthcoming Journal of International Money and Finance (December 2010).Caballero R. (2006), On the Macroeconomics of Asset Shortages. Caballero R. (2009), “The ‘Other’ Imbalance and the Financial Crisis”, Paolo Baffi Lecture, Bank of Italy. BIS Review 120/2010  9  Caballero R. and P. Kurlat (2009), “The ‘Surprising’ Origin and Nature of Financial Crises: a Macroeconomic Policy Proposal”. Caballero, R. (2009), “Sudden Financial Arrest”, IMF 10th Jacques Polak Annual Research Conference. Caballero, R., E. Fahri and P-O.