8  The current version of TMPG’s Best Practices for Treasury, Agency Debt, and Agency Mortgage-Backed Securities Markets is available here. 9  Such documentation includes, but is not limited to, FX master agreements, FX non-deliverable transaction documents, and FX master give-up agreements. BIS central bankers’ speeches  3  participants contribute their expertise and have a sense of ownership in the process. By integrating best practices within their own institutions, private-sector participants support market adoption. 10 Central banks – with their public orientation and interest in the integrity and effectiveness of markets – can further encourage broad adoption of best practices. 11 Third, central bank support can also help broaden the composition of those engaged in designing best practices. The New York Fed strives to have all important segments of the market represented in the membership composition of the groups it sponsors. For example, the TMPG recently added individuals who have experience at a regional broker dealer and a high-frequency trading firm to broaden the views and perspectives on the committee. FXC membership has also evolved significantly since the group’s inception. Both committees include institutions from the sell-side, buy-side, as well as infrastructure providers, such as trading venues. Central banks, and their counterparts, also encourage international collaboration. Such collaboration has increased over time and has reached a significant milestone through the work to develop an FX Global Code. This work spans sixteen different central banks, covering major financial centers in advanced and emerging market economies, and it includes a set of private-sector market participants.

For most, though, this is not a question of whether to integrate, but of how to do so. And the success of this process will depend in part on the ability of central banks to conduct monetary policy in a manner consistent with achieving low inflation. This constellation of exchange rate and monetary policy regimes among emerging market economies, including the major oil exporters, has broader consequences for the world economy as a whole. Insufficiently flexible exchange rate regimes have the potential to alter the pattern of capital flows and the price of financial assets. So do the increase in the mobility of saving and investment; the increase in the desired exposure to foreign assets (the reduction in home bias); the financial market innovation that allows for better diversification and risk sharing; and the differentials in the pace of technology adoption or workplace practices that give rise to varying productivity trends across countries. These all contribute to the patterns of capital flows and imbalances that we observe in the world today, and it is very hard to disentangle their effects from those of exchange rate and monetary policy arrangements. That some of the forces governing capital flows and asset values are driven not by market-determined expected return but by policy measures directed at, for example, an exchange rate objective means that at least some of what we observe in global capital markets may be attributed to these distortions.