In some environments, this requires central banks to forecast demand for liabilities and execute open market operations to supply needed reserves. In recent years, the demand for many central bank liabilities has become higher and less predictable. However, most central banks have been operating with abundant liquidity surpluses, which has limited the impact of this reduced predictability on implementation.12 As central banks embark on balance sheet reduction, however, understanding demand for liabilities may become more important. The demand for digital currencies is not well understood, as these are instruments for which there is no precedent or experience. For a CBDC, central banks would have to understand the behavior of the demand for this new liability. If stablecoins were to be issued by commercial banks, it would also be important to understand drivers of growth in these coins and how that growth might affect banks’ demand for reserves. Trend growth in these central bank liabilities could be quite different than it is for other liabilities, such as cash or reserve holdings of traditional banks. And, the variability in demand could potentially be high, driven by shifts in the market environment or in response to geopolitical developments or other exogenous events. This variability could be amplified if digital currencies were available internationally, potentially leading to larger flows. The variability could create new challenges for supplying the appropriate amount of reserves to the banking system to ensure that administered rates continue to control rates, and could lead to a need for larger liquidity surpluses to ensure interest rate control.

Countries need to establish rigorous supervisory regimes, foster a sound credit culture in banks, and apply international standards of accounting, disclosure, and loan classification and provisioning. Complicated and deeply entrenched ties between the state, banks and industry will have to be untangled. In Indonesia the priority is a still more fundamental one: to resolve the political and security crisis, reestablish an effective government, and restore confidence. Only then will basic preconditions exist to begin to tackle Indonesia's economic problems, which in themselves are daunting enough, and will take considerable time to overcome. While Asia struggles with its problems, the rest of the world has moved on, especially the OECD countries. Their financial industries are being rapidly transformed, and progressively although not fully integrated with one another. This has presented a special challenge to Singapore, a major financial centre in the midst of a troubled region. We cannot totally insulate ourselves from the problems of our neighbours. Yet we have to keep up with developments in other financial centres, to preserve and strengthen our position. Our regulatory environment must stay in line with best practices elsewhere,  BIS Review 45/2001  1  and our domestic financial institutions must gear up to cope with competition from formidable foreign players. Otherwise, we risk being sidelined. Fortunately, when the Asia crisis struck our financial system was basically sound, so the banks and other financial institutions emerged relatively unscathed from the storm. This gave us the flexibility to press on with reforms and liberalisation.