It should therefore be possible to define and build a framework around the following principles: countries should self insure against idiosyncratic risk by holding a sufficient amount of reserves. Protection against systemic risk would come from a multilateral mechanism for international liquidity provision. Of course, the distinction between idiosyncratic and systemic risk may be difficult and involves a broad degree of judgment. But two basic rules should be guiding future work on a multilateral safety net: (1) conditions for access should be specified ex ante; and (2) those conditions should be fully delinked from the situation of individual economies. Rather, they should depend on the state of the global economy and international financial markets. From the point of view of an individual country, access should be fully unconditional, once global conditions are met. A considerable amount of work is currently devoted to devise instruments of contingent capital for financial institutions in times of crisis. The same intellectual framework can be extended to liquidity. What is needed is contingent liquidity i.e. liquidity available to nations in times of aggregate shocks to the international financial system. This raises two questions: where would such liquidity come from? How could it be mobilized? As to the source, a possibility would be to create a process of periodic general allocation of SDRs, according to a predetermined schedule .Those SDRs, however, would not be  BIS Review 76/2010  9  immediately available for use by their beneficiaries.

Charles Kindleberger used to say, “the international financial system doesn’t work unless somebody takes the responsibility for it” (as quoted by Fisher, 2008).   Second, those participants are more diverse from the point of view of their economic structure, their demography, their level of development, and, more importantly, their social choices and preferences. For instance, different saving rates may be seen as resulting from divergent time preferences. Likewise, asymmetries in financial development may, to some extent, reflect different choices and tradeoffs between efficiency and stability in the organisation of capital markets and the architecture of financial systems.   Finally, linkages between economies, whether through trade, capital or more intangible “confidence” channels are continuously getting stronger as witnessed by  1  See, for instance, the proposals aiming at separating the “surveillance” and “financing” functions and making the former more independent from the Executive Board. 2  BIS Review 76/2010  the speed and amplitude of contagion of economic and financial shocks during the last eighteen months, which took everybody by surprise. Pending some economic catastrophe, these characteristics will persist over time. A large number of different countries, with different preferences, will permanently be linked and interdependent through active, but imperfect capital markets. Any future international architecture must be compatible with those basic features of today’s world which, prima facie, create the potential for more complexity and, maybe, instability. International capital markets and the allocation of savings Let’s suppose, for an instant, that there is a unified, fully integrated, and complete world capital market.