andreas dombret : local currency bond markets and international capital flows introductory statement by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the third international workshop on developing local currency bond markets in emerging market economies and developing countries, co - hosted with the world bank group and the international monetary fund, frankfurt am main, 17 – 18 november 2011. * * * ladies and gentlemen although the topic “ developing local currency bond markets in emerging market economies and developing countries ” rarely makes the headlines, it has rightly met with growing and broader political support in recent years. this is a reflection of the great significance that domestic bond markets in this region have for national and global financial stability. for this reason, we are very pleased that this topic has been one of the main agenda items during the french g20 presidency in 2011. what is more, this lends greater continuity to the g20 process and to the discussion of the g20 topics. besides ensuring that summit decisions are implemented, this also gives these decisions greater public credibility. this applies, in particular, to the establishment or expansion of financial markets, which will take decades rather than just a few years. since the asian crisis, many emes – supported by numerous global, regional or national institutions – have been successful in their efforts to deepen their local bond markets. nonetheless, further challenges lie ahead. at the global level, the g7 finance ministers and central bank governors agreed in 2007 that developing local currency bond markets ( lcbms ) deserved more political support. the bundesbank backed this process in close cooperation with the federal ministry of finance and played a major part in drawing up the g8 action plan, which was endorsed in may 2007. since then, the bundesbank has, with the international monetary fund and the world bank group, co - hosted three international workshops dealing with ways to implement the g8, and now the g20, recommendations. and in the years ahead we will continue to play an active role in this initiative in very fruitful and constructive cooperation with all of you. the significance attributed to lcbms for national and global financial stability is also reflected in the fact that, as part of the g20 process, this topic was – inter alia – dealt with by the international monetary system ( ims ) working group. a report on their findings was submitted to the g20 finance ministers and central bank governors ; this topic was also on the agenda of the heads of state

the financial system more diversified, and make it easier for enterprises to access finance on international credit markets in times of tension. what is more, they play a part in ensuring that savings are not invested solely or primarily in equity markets, which could promote herd behaviour. lcbms facilitate the smooth market - based financing of investment needs. first studies, which require substantiation, back up the assumption that developed lcbms also help dampen the volatility of international capital flows, a finding of major significance in the light, in particular, of this year ’ s g20 discussion. they broaden the spectrum of investments for international investors and facilitate their global search for diversification. according to some commentators, lcbms actually contribute to rebalancing by keeping savings at home. these savings not only boost domestic investment and consumption, they also increase the country ’ s propensity to import. this is only an abbreviated list of the potential advantages identified during the financial crisis, although some of them are as yet no more than a scientific working hypothesis. analyses of this kind always beg the question of their practical implications for any amendments to concepts for technical assistance that may be necessary or changes to priorities. this workshop can bring us an important step forward by also helping to formulate key questions for further research. some key questions concern technical assistance itself, however, and are related more to the structure and state of development of the relevant countries than the question of financial stability itself. the focus of the workshop is quite rightly on discussing and developing a diagnostic framework, the aim being to categorise countries by their state of development and financial structure and to determine what ta measures promise the greatest success in which countries. bis central bankers ’ speeches although many institutions are working on these issues, permit me to make particular mention of the european bank for reconstruction and development ( ebrd ). the ebrd is incorporating into this workshop major elements of its local bond initiative, which has been well received worldwide. to develop a framework that defines uniform principles for all countries is a real challenge, yet it is crucial as a means of heightening the efficient deployment of ta resources. the question of what obstacles lie on the path to deeper lcbms is not just about regulatory roadblocks or market infrastructure – which are among the usual suspects when evaluating such things. no, it is important to see local bond markets not only in isolation but also within the overall context of the financial system. for example, a