Such a scenario could prove attractive both for capital exporters (through better returns on excess savings) and capital importers, which may not have the option of isolating themselves from international capital markets anyway. Experience shows, however, that an open international financial system is not inherently stable and, therefore, very dependent on a strong infrastructures and conditions. The move towards a financially open world would, at the very least, have to be supported by robust arrangements on international liquidity provision. Pending ambitious reforms, a lot can still be done to provide investors with stable stores of value. One very promising avenue would be, for countries which have surplus savings, to develop their own internal stores of value by expanding the range of safe and liquid financial assets available to domestic and international investors. By doing so, they would achieve several goals at the same time. They would bring more efficiency in the financing of their own domestic needs. They would provide their own investors with a broader range of choices. They would also eliminate some of the currently existing incentives to export capital in order to protect its value. They would contribute to reduce the “asset shortage” with all its negative consequences, including international imbalances and the financing of asset bubbles. Financial development in many countries would address both the causes of international imbalances and some of the roots of the financial crisis. References Adrian, T. and H. S. Shin (2008), “Liquidity and Leverage”, Federal Reserve Bank of New York Staff Report No 328.

Gourinchas, P-O. and H. Rey (2007), “International Financial Adjustment”, Journal of Political Economy, 115(4). Hausmann, Ricardo and Federico Sturzenegger (2005), “U.S. and Global Imbalances: can Dark Matter Prevent a Big Bang?”. Henriksen, E. and F. Lambert (2009), “Technology Shocks and Current Account Dynamics”, mimeo, New York University. Hausmann, Ricardo and Panizza, Hugo (2010), “Redemption or Abstinence ? Original Sin, Currency Mismatches and Counter-Cyclical Policies in the New Millennium”, CID Working Paper, Center for International Development, Harvard University, February 2010. Jeanne O. and Ranciere R., (200), “The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications”, CEPR Discussion Papers 6723. Kashyap, A. K., R. G. Rajan and J. C. Stein (2008), “Rethinking Capital Regulation”, Federal Reserve Bank of Kansas City Symposium, August 2008. Landau, J.P. (2009), Some Thoughts on International Monetary Reform. Remarks at the G20 Workshop on the global economy: Causes of the Crisis: Key lLessons. Mumbai 24–26 May 2009. Available at :  10  BIS Review 120/2010  http://www.g20.org/Documents/g20_workshop_causes_of_the_crisis.pdf?bcsi_scan_7B0403 5E3E2807B8=1 Lucas, R. (1990), “Why Doesn’t Capital Flow from Rich to Poor Countries?”, American Economic Review, Vol. 80, No 2. Matteo y Lagos, I., R. Duttagupta and R. Goyal (2009), “The Debate on the International Monetary System”, IMF Staff Position Note, SPN/09/26. Mendoza, E., V. Quadrini and J-V Rios-Rull (2006), “Financial integration and financial deepness and global imbalances”, NBER Working Paper No 12909 and Journal of Political Economy, Vol. 117, 3.