To a large extent, international monetary arrangements, as well as current account imbalances, are the by-products of policy choices made by countries on their capital account regimes and financial development. Here, I will focus on three topics: global imbalances, the provision of international liquidity and the newly emerging question of an international store of value. These are issues of joint and common interest for all countries, Getting to a common understanding on those matters would help in making progress on other, more contentious questions, such as exchange rates regimes. Global imbalances and the policy agenda Current account imbalances have increased both in amplitude and durability during the last decade. In fact, they have become a permanent characteristic of our economic environment. Contemporary analysis point to “structural” causes behind the pattern of capital flows and global imbalances:   According to the “Bretton Woods II” approach (Dooley et al. 2003, 2008, 2009), the pattern of capital flows results from a mutually beneficial equilibrium between two groups of countries. On the one hand, emerging economies which follow an exportled development strategy and seek to prevent appreciation of their real exchange rates by constant foreign exchange intervention (together with capital controls). As a consequence, they accept to accumulate increasing stocks of liquid assets denominated in dollars. On the other hand, the US is happy to get both reserve inflows to finance their deficits and cheap imports to fuel their demand for consumption goods. Such equilibrium is stable by virtue of the mutual benefits it brings to both groups.

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.