Let me focus on some of the most prominent ones: the alleviation of barriers to trade in goods and financial assets, and factors affecting the overall demand and supply of securities. Alleviation of barriers to trade in goods and financial assets Barriers to trade in goods, services and financial assets have been progressively lifted during the last few decades, leading to a growing interaction among national economic systems. This growing interaction and connectedness is what people commonly refer to as globalisation. Countries participating in this process have seen their domestic financial markets become more integrated with markets abroad. Two factors shape and characterise this process. First, technological innovation has sharply reduced transportation and telecommunication costs. Some figures taken from an IMF study illustrate this 1 impressive change . Table 1 Communication and computer costs, 1960-2000  1960 1970 1980 1990 2000  Cost of a 3-minute phone call, New York to London (in 2000, USD)  Price of computers and peripheral equipment relative to GDP deflator (year 2000=1000)  60.42 41.61 6.32 4.37 0.40  1,869,004 199,983 27,938 7,275 1,000  Source: IMF. 1  P. Masson (2001): “Globalization: Facts and Figures”, IMF Policy Discussion Paper 01/04, International Monetary Fund, Washington D.C.  BIS Review 37/2002  1  In only 40 years, telecommunication costs shrank by a factor of about 150, while computer costs became around 1900 times cheaper. As a consequence, information is now disseminated almost in real-time and at low cost. Second, financial crises have become more frequent.

Most of the time, they are driven by rapid inflows and outflows of capital. We still vividly remember the crises in Mexico, Asia, Russia and Argentina. Obviously, these crises have not been restricted to the financial sector, but have had a profound impact on the real economy as well. The lifting of restrictions to cross-border holding and trading of financial assets has unleashed massive capital flows. According to World Bank figures, global debt and equity flows (excluding foreign direct 2 investment) expanded by more than five times since 1991, from USD 794 billion to USD 4.3 trillion . Without doubt, this development reflects a long-term trend. More and more investors decide globally and on the basis of risk-adjusted expected returns. Taking place in a system of increasingly integrated capital markets, capital allocation has become more efficient. The other side of the coin, however, is the increased volatility on financial markets. Indeed, portfolio investments, in particular those in markets with relatively high liquidity, have become more erratic, as fund injections and withdrawals respond very quickly to new information. According to the IMF, assets managed by institutional investors on mature markets are estimated at about USD 30 trillion in 1998. Thus, any shift in such a huge portfolio is very likely to exacerbate economic cycles and will possibly lead to contagion among financial markets. The impact of portfolio re-balancing will be all the more powerful as macroeconomic policies seem to be unsustainable and as financial institutions show fundamental weaknesses, often with regard to financial strength, supervision and transparency.