, also built up reserves. these " war chests " of foreign reserves have been used as a buffer against potential capital outflows. additionally, reserves were accumulated in the context of foreign exchange interventions intended to promote export - led growth by preventing exchange - rate appreciation. countries typically pursue export - led growth because domestic demand is thought to be insufficient to employ fully domestic resources. following the 1997 - 98 financial crisis, many of the east asian countries seeking to stimulate their exports had high domestic rates of saving and, relative to historical norms, depressed levels of domestic capital investment - also consistent, of course, with strengthened current accounts. in practice, these countries increased reserves through the expedient of issuing debt to their citizens, thereby mobilizing domestic saving, and then using the proceeds to buy u. s. treasury securities and other assets. effectively, governments have acted as financial intermediaries, channeling domestic saving away from local uses and into international capital markets. a related strategy has focused on reducing the burden of external debt by attempting to pay down those obligations, with the funds coming from a combination of reduced fiscal deficits and increased domestic debt issuance. of necessity, this strategy also pushed emerging - market economies toward current account surpluses. again, the shifts in current accounts in east asia and latin america are evident in the data for the regions and for individual countries shown in table 1. another factor that has contributed to the swing toward current - account surplus among the nonindustrialized nations in the past few years is the sharp rise in oil prices. the current account surpluses of oil exporters, notably in the middle east but also in countries such as russia, nigeria, and venezuela, have risen as oil revenues have surged. for example, as table 1 shows, the collective current account surplus of the middle east and africa rose more than $ 40 billion between 1996 and 2003 ; it continued to swell in 2004 as oil prices increased yet further. in short, events since the mid1990s have led to a large change in the collective current account position of the developing world, implying that many developing and emerging - market countries are now large net lenders rather than net borrowers on international financial markets. of course, developing countries as a group can increase their current account surpluses only if the industrial countries reduce their current accounts accordingly. how did this occur? little evidence supports the view that the motivation to save has declined substantially in the industrial countries in recent years ; indeed, as i have

the world economy that we find ways of allowing competitiveness to adjust so that trade imbalances, and hence the present scale of indebtedness, can be reduced. neither liquidity nor austerity are answers to the question of how to restore a loss of competitiveness. dealing with these structural issues will take time. meanwhile, how do we resolve the immediate crisis of confidence in some banks and sovereigns? since the summer, there have been renewed concerns about the adequacy of the capital of banks in the euro area to absorb likely future losses, thus jeopardising their ability to raise funds. wholesale funding dried up for many banks over the summer, and share prices of european banks are around 35 % lower today than at the start of july. a transparent recognition of losses and a substantial injection of additional capital are necessary to restore market confidence. on its bis central bankers ’ speeches own, however, such a policy will raise difficult political questions about the capacity of the weaker sovereigns to pay for any recapitalisation of their banks. bank and sovereign solvency concerns are inextricably intertwined. in the end, the underlying solvency concerns require countries to adopt compatible policies so that they can credibly service their internal and external debts. what does this mean for our own economy? our objective must be to steer the uk economy slowly back to a position of more normal interest rates and lower budget deficits. with a lower level of sterling and a credible plan to reduce the fiscal deficit over the medium term, we were on track. but the problems in the euro area and the marked slowing in the world economy have lengthened the period over which a return to normality is likely. 2011 has been the year of the reluctant recovery. growth has disappointed, both here and abroad. business and consumer confidence have fallen sharply, not only at home but also elsewhere in europe and the united states. and the level of world trade in goods has stagnated. a slowing of the world economy, especially in the euro area, is a threat to our strategy of rebalancing and recovery of the uk economy. despite the more competitive level of sterling, the recovery in our trade position is at risk of stalling. it is not surprising, therefore, that although unemployment has been broadly stable over the past two years at around 2½ million, a rate of about 8 %, it has risen in recent months, especially among young people. and total output remains around