currency board is wise for a country in transition which still has a considerable road to travel in its development from a centralised command economy to a market economy. a currency board only makes sense if it is credible over a lengthy period of time. and it is credible only if the domestic financial sector - 3is sound enough to stand a temporary monetary contraction if the necessity arises. that scarcely seems to be the case in russia at the moment. external arrangements have to be particularly realistic. that is becoming increasingly apparent nowadays in the question of the liberalisation of the financial markets in the emerging economies. without doubt, liberalising capital movements is the right direction to take. but if the internal financial sector has major problems in handling extensive capital flows in a sound manner, the question has to be asked about the pace and sequencing with which a country opens itself up. the subject of controls on capital movements is very much to the fore in the debate at present, especially for some of the asian countries in crisis. at the end of the day, every country has to assess for itself which path it will follow. it is understandable if a country is concerned about becoming too dependent on hot money - at least, as long as the domestic financial sector is not fully developed. no one should indulge in any illusions, however. administrative controls are not an easy thing in today ’ s world. the markets will be permanently on the lookout for ways of circumventing those controls. and, mostly, the markets are more inventive than the controllers. controls on capital movements also exact a price in most cases. in order to be effective, controls must be comparatively broadly designed. that implies that effective controls also adversely affect desirable capital movements to some extent. and controls on capital movements may have the effect of retarding the strengthening of internal structures. admittedly, in some cases and for specific areas, it may make sense to buy time for developing suitable domestic structures. but that time also has to be used. otherwise, buying time might backfire. for instance, controls might encourage corruption and cronyism. for that reason, even controls of capital inflows represent a certain degree of risk. even though there are arguments for regarding them, under particular conditions, as a contribution to preventing crises and to limiting the potential for a setback. but controls of capital outflows as a means of crisis management are of a different nature. they may directly attack investors ’ confidence. the risk of a crisis

days. ii what can be done against financial turbulence? first and foremost, financial crises are not an ineluctable fate. internal weaknesses or shortcomings nearly always play a considerable role. conversely, it is also true to say that there is no universal patent remedy. but this much is certain : long - term domestic stability and, above all, the enduring credibility of internal policies are the best protective measures. whatever we currently discuss with great seriousness and commitment at the international level, even the best possible architecture for global finance needs sound foundations. those indispensable foundations are provided by convincing long - term domestic policies on the part of the countries themselves. that means : sound public finances, stable prices, sound banking and financial sectors, and competition and flexibility in the domestic product and labour markets. it cannot be said often enough : internal policies must be in order. that is the starting point for any architecture. they are, so to speak, both the foundations and the supporting pillars. greater and, above all, improved transparency is just as essential for monitoring the quality of those foundations and pillars as is regular surveillance by the imf as part of the article iv consultations. more than hitherto, the financial sector and its supervision should also be the object of examination, not just classical macropolicy. of course, one must not expect that greater transparency and strengthened surveillance by the imf will mean a perfect world in future. countries ’ internal structures are rarely ideal. and that is something which a global financial system has to come to terms with. therefore, external arrangements among currencies and between a country and the global financial markets are naturally also of importance. however, these must be viable in the real world. for example, stable exchange rates are undoubtedly desirable. they provide enterprises and financial investors with planning certainty. in certain cases, exchange rate pegging may be useful for that purpose. moreover, an exchange rate peg may, for a time, help to import stability from outside. ultimately, however, that borrowed credibility has to be paid back by internal performance. and every country must also know that in today ’ s dynamic world there may easily arise an unavoidable need to adjust the exchange rate - not just the nominal exchange rate but also the real one. and that is the reason why every country has to examine critically whether it has sufficient internal flexibility to hold a nominal exchange rate peg by means of strenuous internal adjustment. hence, it is questionable whether installing a