This made banks, and bank deposits, special in a different sense insofar as similar formal supervision and asset protection were not (at that time) extended to other financial intermediaries or their liabilities. These then are the respects in which banks have hitherto been regarded as special. Let me now move on to consider whether, or to what extent, the banks have kept their distinctive characteristics, or to what extent other financial institutions have developed similar characteristics so that banks are no longer special in that sense. To what extent have banks changed? It is certainly true, as I noted earlier, that banks engage in a range of financial activities besides those which I have described as distinctively banking activities. Major banks everywhere have increasingly diversified the products and services they offer, built up investment banking businesses and trading activities, extended into life insurance, and so on, sometimes on a single balance sheet or sometimes in separate non-banking entities. In the present context, however, the question is whether these developments have fundamentally altered the characteristics of the banking part of their balance sheets. It seems to me that the answer, generally speaking, is that they have not. On the liabilities side, while there may have been (indeed in some countries, where close substitutes for money, such as money-market mutual funds have taken off, there certainly has been) some erosion of the banks’ market share as a repository for liquid asset holdings, that erosion has generally been very gradual.

A sound macro-economic framework and appropriate macro-economic policies are essential as they condition the resilience of any economy to external shocks. Three issues are worth being addressed in that respect: -  As far as the choice of an exchange rate regime is concerned, the sustainability of any regime depends crucially on its consistency with a country’s domestic macroeconomic and structural policy framework. As a consequence, the so called “corner solutions” are not necessarily the only available options; “intermediate solutions” remain relevant options, particularly for open economies with close links to a partner country (or a single currency area) that maintains price stability, or for countries experiencing high inflation anchoring the currency provides a simple and credible rule for monetary policy; in that regard, intermediate solutions might be particularly appropriate for countries which apply to join the European Union. -  The soundness of domestic financial systems is a core element in the ability of an economy to resist external shocks; furthermore, it is clear that weaknesses in the financial system can lead to financial instability and therefore trigger capital outflows, as experienced in the context of recent financial crises. As a consequence, emerging market economies should establish an appropriate institutional, supervisory and regulatory framework, building on international standards, such as the Core Principles for Effective Banking Supervision issued by the Basle Committee on Banking Supervision. -  The implementation of sound macro-economic policies is also key as regards crisis prevention. In that respect, let me just say a few words on reserve and debt management.