Greater use of exchange rate flexibility in emerging countries that have experienced an excessive accumulation of foreign exchange reserves is therefore one factor in the resolution of global imbalances. Moreover, it may contribute to facilitating domestic monetary policy management (decreasing inflationary pressures) and makes it possible to better contain liquidity growth and the risks associated with reserve accumulation and sterilisation. Of course, the gradual implementation of exchange rate flexibility requires that controls on capital flows be lifted at a suitable pace. East Asia experienced this and I am eager to listen to your views on the interaction between financial reforms, institutions and structural or macro-economic policies. To conclude, let me say that, in the liberalisation process in which France and later India have engaged, both may learn from each other since they share similar features and are key players in a globalised world. To this end, cooperation should be strengthened. Cooperation between the RBI and the Banque de France is especially relevant since our two institutions look alike, for instance in terms of diversity in activities, structures (including branches) or staff recruitment for life through competitive examinations. At the financial industry level, more cross-fertilisation should also help. The French financial industry includes some of the largest European banks and insurance companies. Their business models are solid and based on a broad domestic market and best international practices. This enables them to generate strong profitability and develop abroad. But above all, the French financial industry has some specific features that may be valuable for Indian players.

An efficient statistical apparatus provides the basis for financial transparency, thus contributing to disseminating best practices in terms of governance. Besides, institutional quality also strongly influences the composition of inflows into emerging economies. This is a key determinant of FDI flows, which tend to increase the benefits of financial integration. The need for sound economic policies and strategies should not either be neglected. In a globalised world where countries compete to attract foreign capital, sound fiscal and monetary policies influence not only the amount but the composition of inflows. Sound domestic policies strengthen the resilience of the economy to external shocks and thus maximise the growth benefits of capital account liberalisation. Recent crises remind us how macroeconomic imbalances may be exacerbated by financial fragilities and trigger capital account problems affecting economic growth. For instance, experience shows that excessive fiscal deficits are more dangerous with open capital markets. Actually, market discipline is not always at play or sufficient if there is excessive appetite for risk and not enough discrimination. Therefore, internal rules as well as Government commitments may be needed as illustrated by the socalled European Stability and Growth Pact. In the same way, structural policies aiming at improving the efficiency of the labour and good markets shall accompany financial liberalisation. They are indeed needed to enhance the capacity of the real economy to attract and allocate capital as well as to reduce vulnerabilities and absorb potential shocks.