But the market characteristics imply a tendency towards natural monopoly in the provision of infrastructural services and hence dependence on a single, non-substitutable provider: often termed a “single point of failure”. A monopolist provider of infrastructure services may face insufficient incentive to innovate – including in risk-reduction – and, importantly, may not fully internalise the potential effects of a disruption to its services on the financial system as a whole, thereby undervaluing system resilience from a public policy perspective. But couldn’t the users of the infrastructure ensure that the monopoly provider invested more heavily in risk mitigation? And with many infrastructures being user-owned cooperatives, would there not be a natural mechanism for this? Perhaps – and indeed there is evidence of effective risk-mitigation among user-owned providers, for example the throughput guidelines on payment flows to lower liquidity risk in CHAPS, the UK high value RTGS payment system, was led by member initiative. But such risk mitigation may still not be enough to meet social welfare goals fully. First, the effects of a disruption are likely to be felt beyond what may be a narrow group of direct users of the infrastructure. That is, the effects may be systemic; for instance, there may be an interruption to the flow of liquidity via dependent markets or systems, or among participants relying on the system indirectly, for example through a correspondent banking relationship. Second, users may place insufficient value on systemic stability because material operational failures are low-probability events and difficult to anticipate.

There are also calls for establishing new global mechanisms to address the concerns of emerging market economies regarding FX liquidity, which has led to accumulation of high amount of FX reserves through capital controls and intervention on exchange rates to keep local currency undervalued. Of course, relaxing capital controls and gradual adoption of more flexible exchange rate systems should also be part of this package to achieve successful reorientation of global demand from advanced economies to emerging market economies. Last but not least, all countries should undertake necessary actions to repair, restructure and reform their financial system. Necessary structural reforms in product and labor market should also be a top priority to increase potential growth rates and reduce permanent unemployment. Dear Guests, Now let me turn to responsibilities of central banks and elaborate on their evolution over time. Until recently when you asked the primary mandate of central banks, the typical response would be price stability. However, the history tells us that central banks were founded for quite different reasons in many countries. For instance the Bank of England was founded in the 17th century to cover the financing need of the British Government during its war against France. Likewise, Bank de France was created in the 19th century during the Napoleon Wars against the Great Britain. These institutions had the privilege of issuing banknotes in  2  BIS Review 73/2010  exchange for providing funds for treasuries. In other countries providing stability in financial markets was the paramount concern.