The US economy in particular is on the road to recovery. Financial market participants see opportunities, not just problems. However, in a number of emerging economies volatile capital flows are creating problems. High debt growth and rising house prices may constitute a risk. The recovery abroad is fragile. The key policy rate is also low in Norway. Our inflation target is slightly higher than that of other European countries. As a result, inflation and nominal interest rates in Norway are also slightly higher. But prospects for a persistently low interest rate level internationally will inevitably also have consequences for Norway. The real interest rate in a small open economy cannot in the long run differ substantially from that of our closest trading partners. Given the prevailing long-term interest rates abroad, it will likely take a number of years for interest rates in Norway to move up towards a level that was previously considered to be normal. When the drafters of the Constitution gathered at Eidsvoll 200 years ago, there were no private banks in Norway. It was not until the latter half of the 1800s that a private banking system truly came into being. Norges Bank acquired its present-day role as lender of last resort. With private banking came banking crises. The 1899 crash in Christiania triggered the first serious banking crisis in Norway. A real estate bubble in the capital burst and house prices plummeted. It took more than 100 years for real house prices in Oslo to return to their pre-crisis level.

The 2010 IMF quota and governance reforms are a significant development as they give greater voice to EM countries on governing the IMF policies and procedures. This development together with increasing awareness of sufficient global safety nets would strengthen IMF recourses and reduce their stigma effect. Again, there is a symmetry issue in the provision of liquidity during financial stress times – whether there should be internationally designed mechanisms enforcing countries that supplied excessive liquidity in the first place also to provide liquidity to all recipient countries during financial stress times such as through currency swap arrangements. The confidence function of the IMS highlights the fact that all stakeholders including financial markets have greatest confidence in the functioning, resources and governance of the system. Strengthening its recourses, improving its governance and advancing its functions will crucially bolster all stakeholders’ confidence in the system. What have been done recently along the lines of the 2010 IMF quota and governance reform, the inclusion of the renminbi in the SDR system and the recent increases in the IMF resources greatly improved confidence in the IMS. The adjustment mechanism of an IMS is mostly related to its sustainability but also affects its confidence function. The IMS requires a symmetric and fair adjustment mechanism. The G20 plays a central role in the adjustment mechanism of the IMS through fostering international policy coordination and cooperation. The IOs, especially the IMF, largely execute this G20 objective through bilateral surveillance and multilateral surveillance or oversight of the world economy.