- system ” ( truman ( 2012 ) and de larosiere ( 2014 ) ) – a system whose shape and scale has outgrown its architecture. i want to discuss these developments and their public policy implications. i first discuss the historical evolution of the international monetary network, including the remarkable recent surge in financial globalisation. i then discuss why financial globalisation can be doubleedged from a stability perspective. finally, i consider steps to strengthen the international architecture, to better manage global finance as a system. the historical evolution in global finance it is fascinating to track how global financial integration has evolved over the past century. one way of gauging that is by looking at measured stocks of external asset and liabilities – the cumulative consequences of past cross - border capital flows ( and valuation changes ). charts 1 and 2 plot world gross external assets, measured relative to world gdp, over the past 140 years. as a comparison, world trade relative to world gdp is also shown. global integration of trade and finance has followed roughly similar patterns. both rose prior to world war i during the heyday of the classical gold standard, when trade and capital liberalisation were last at their peak. both then fell during the interwar years, as national protectionism led to trade and financial barriers being erected. then, from around 1960 onwards, trade and finance once more began to rise due to the lifting of restrictions on crossborder trade and capital flows ( broadbent ( 2014 ) ). despite this close historical correlation, the undulations in global finance are far greater than those in world trade. in 1960, global finance was around one third of its value in 1914, measured relative to world gdp. by 2010, it had risen to three times its value in 1914. put differently, in 1980 global trade and global finance were on a broadly equal footing, at around a quarter of world gdp. by 2010, global finance was nine times global trade. at the same time world trade has flat - lined, global finance has come of age. today, cross - border stocks of capital are almost certainly larger than at any time in human history. we have hit a new high - water mark. the same is probably true of cross - border flows of goods and services and is most certainly true of cross - border flows of information ( haldane ( 2013 ) ). we are accustomed to talking of the information technology revolution. yet the revolution in global finance has in some respects been every bit as striking.

while these trends tell us something about relative patterns of global interconnection, they leave unanswered the question of whether global finance is a truly integrated network. to gauge that, consider an alternative measure of global capital market integration – the correlation between national saving and investment rates. from feldstein and horioka ( 1980 ), we know that this correlation provides a proxy for capital market integration. for example, a savings / investment correlation of one indicates a closed capital account : all domestic investment needs to be fully financed from domestic saving. at a global level, this bis central bankers ’ speeches would signify something close to global financial autarky. by contrast, a correlation of zero implies that domestic investment can be fully financed on global capital markets. this would signal something close to perfect capital market integration. so saving / investment correlations of zero and one define the outer limits of global capital market integration. chart 3 plots this correlation coefficient over the same 140 - year period shown in chart 1. broadly - speaking, the two series track one another fairly closely. but chart 3 now allows us to say things about the absolute degree of capital market integration. and what a rollercoaster ride it has been. during the first period, from around 1880 up until the great depression, global financial integration sat roughly mid - way between its outer limits. integration was high - ish, but far from perfect. for around a fifty year period, from the 1930s through to the 1980s, global finance then went into hibernation. the feldstein / horioka coefficient skirted one for large parts of this period. the global financial system operated as anything but a system. indeed, it was this which prompted feldstein and horioka in the early 1980s to present the “ puzzle ” of still - low levels of capital market integration. yet at pretty much precisely the point this puzzle was being identified, it began to disappear. correlations quickly moved from close to unity in the early 1980s to close to zero by the start of the 21st century. this was an astonishingly rapid evolution from a world close to financial autarky to one close to financial nirvana. in the light of the crisis, measured levels of global capital market integration have fallen somewhat. but they remain at higher levels than at any point in history. overall, then, the picture is clear. for much of the 20th century, global finance was more patchwork than network. but the past thirty years have seen that