s. assets, including u. s. bonds. in summary, i have argued today for an international system based on the principles of flexible exchange rates, free capital mobility, and independent monetary policies, at least within the great majority of countries. important complementary elements include free trade ( though i have not discussed it today ) and the further development of the “ soft ” infrastructure - the legal, regulatory, fiscal, and financial frameworks that characterize advanced economies. the fundamental virtue of this system is its flexibility and adaptability, qualities that will become increasingly essential in a complex and interdependent world.

s greatest asset is its institutional credibility. this institutional credibility is rooted in its inflation - fighting credibility, but it is broader still. 2 it is tied up in the full range of fed the views expressed here are my own and not necessarily those of my colleagues on the board of governors or the federal open market committee. nellie liang and dan covitz of the board ’ s staff contributed to these remarks. in the economics literature, central bank credibility generally refers to its reputation for being more averse to inflation than the fiscal authority. the broad consensus is that credibility along this dimension allows better economic outcomes. credibility anchors inflation expectations, which in turn allows the central bank to keep actions and balance sheet commitments. this credibility is essential. it increases the heft of our communications. it gives weight to our economic assessments. it amplifies the effect of announced changes in the short - term policy rate on longer - term rates. it is, in some sense, the real money multiplier in the conduct of policy. given its immense value, we should not forget that the federal reserve ’ s hard - earned credibility is no birthright. it is as much nurture as nature. it was earned by our predecessors in the conduct of their duties, making considered judgments consistent with the statutory mandate of price stability and maximum employment. fortunately, for the asset to be burnished and bestowed upon the current crop of central bankers, it did not demand perfect clairvoyance or infallible judgments. but it did require fierce independence from the whims of washington and the wants of wall street, and from a pernicious short - termism that can undermine the proper conduct of policy. this fierce independence is needed, perhaps now more than ever. central bank independence is precious. it can be taken for granted in benign times, but it is tested when times get tough. and we still have tough times ahead of us. my colleagues and i must demonstrate that fed independence has not been relegated, and the fed ’ s long - term objectives not compromised. ensuring fed independence – as the cornerstone of institutional credibility – is our charge to keep. it is central to what the federal reserve represents, and to how policy is conducted. the mantra of fed independence is not some throw - away line that seeks to absolve the central bank of accountability. to the contrary, institutional credibility demands transparency so that the fed ’ s performance of its responsibilities can be judged on the merits. but, the call for central bank