With each central bank focusing on  2  BIS central bankers’ speeches  their own domestic mandates, financial conditions collectively for the world as a whole can be suboptimal. Global credit and monetary expansion seems to be precariously unanchored. Given the complexity of cross border interactions, the expansion of central bank balance sheets the world over has implications for the system as a whole that are by no means clear. This is especially worrying given that existing facilities for international liquidity support is inadequate for absorbing a large international crisis should one occur. In a highly integrated global economy, the need for collective action is inescapable. But progress in achieving this with respect to the international monetary and financial system so far is very limited. As with all common goods, achieving political will to further the collective interest is extremely difficult. Thus while we can hope for greater international coordination, we can certainly not plan on one. Instead, countries are left to fend for themselves. Here, the experience of Asia offers some guiding principles. In many ways, Asian countries have been pioneers in terms of policy responses to dealing with capital flows. This often entailed going against prevailing wisdom and convention. In 1998, facing intense speculative flows from hedge funds, the Hong Kong Monetary Authority purchased stocks to counter the steep fall in equity prices. In the same year, Malaysia introduced capital controls amidst the Asian financial crisis to stem the decline of its currency.

In both cases, there were harsh criticisms by the international community, which deemed the measures as undermining the benefits of free markets. Fast forward to 2008, a generalized downward spiral in asset prices and abrupt market seizures were contained by extraordinary interventions of major central banks, particularly the Federal Reserve. The interventions were far reaching, ranging from loans to banks and non-banks to direct support of private securities, such as commercial paper and mortgagebacked securities. In effect, central banks became market makers in some segments of the market. These interventions were widely applauded. What a difference a decade makes! In the wake of the global financial crisis, an emerging consensus is that market interventions in certain circumstances are justified. No more is this evident than with respect to the use of capital flow measures, or CFMs. It is now generally accepted that CFMs targeted at tilting the composition of inflows away from debt, especially short-term ones, can be beneficial. More generally, macroprudential measures have become an important part of policymakers toolkit, with increasing theoretical support for their use in a counter-cyclical manner. A similar reassessment has occurred with respect to foreign currency intervention, which is increasingly being recognized as a useful and justifiable complementary tool. Also, the large accumulation of foreign reserves that was once criticized is now credited with helping to mitigate the impact of the global financial crisis on emerging market countries. Thus much of what Asia was doing before on the fringe, so to speak, have now become mainstream.