system, and manageable external payments position. these strengths did not materialize overnight. these are well - earned dividends of our sound commitment to timely policy actions and to necessary and bold structural reforms over the years. with this in mind, it is easy to see good policymaking as akin to investing in the country ’ s wellbeing. as with any investment decision, getting the timing right requires mindfulness, vigilance, and flexibility, as economic conditions could shift at a moment ’ s notice. prudence also requires policies to be grounded on a reasonable assessment of pertinent information on potential costs, benefits, and tradeoffs. clouds on the horizon nevertheless, in spite of a generally favorable economic climate, there are a few clouds on the horizon that require us to be especially vigilant. there are two particularly key developments that could challenge the country ’ s position of relative strength. we intend to address these with timely and well - informed policy responses. one revolves around dealing with inflation and potential overheating. at our most recent assessment of the monetary policy stance last march, we determined that our prevailing monetary policy settings continued to be appropriate. inflation has been evolving in line with our projections, as the first - round price effects of the recent tax reforms appear to have been limited. we also considered that prospects for domestic economic activity continue to be firm and within economic potential that in itself is being bolstered by investments in both physical infrastructure and social capital. at the same time, the bsp has always been patient in analyzing data and calibrating scenarios in assessing the monetary policy stance. our latest readings do show that the risks to inflation remain weighted toward the upside. our surveys indicate that inflation expectations have started to rise. these could contribute to potential second - round price effects. nevertheless, nonmonetary measures such as targeted subsidies are expected to mitigate these second round inflationary pressures. we shall see. and we shall act accordingly. today, the bsp has many options to maintain firm monetary control. since the adoption of the interest rate corridor ( irc ) system in 2016, we have gained sufficient flexibility to rely on auction - based instruments for liquidity management to complement our workhorse overnight reverse repurchase borrowings at our declared policy rate. we can adjust monetary conditions by adjusting auction volumes to move our market - determined term deposit facility ( tdf ) rates. this has effectively allowed us a channel to provide guidance to short - term market interest rates. in

frederic s mishkin : globalization and financial development remarks by mr frederic s mishkin, member of the board of governors of the us federal reserve system, to the new perspectives on financial globalization conference, international monetary fund, washington dc, 26 april 2007. * * * in the united states and many other countries, students learn that the key to success is hard work. yet when we look at many developing countries, we see people who work extremely hard for long hours. their wages are low, and so they remain poor. and as a whole, their countries remain poor. if hard work does not make a country rich, what does? the right institutions are essential. nobel laureate douglass north defines institutions as the " rules of the game in a society, or, more formally, humanly devised constraints that shape human intervention. " ( north, 1990, p. 3 ). among the institutions that are most crucial to economic growth are those that enable a country to allocate capital to its most productive uses. such institutions establish and maintain strong property rights, an effective legal system, and a sound and efficient financial system. in recent years, the field of economic development has come to the conclusion that " institutions rule " and are critical to economic growth. 1 an extensive literature focuses on financial development as a significant force driving economic development. 2 however, developing good institutions that foster financial development is not easy : it takes time for institutions to evolve and adapt to local circumstances. in addition, vested interests in poor countries often oppose the necessary reforms because they believe that such reforms will weaken their power or allow other people to cut into their profits. how can poorer countries overcome these obstacles? how can they change the distribution of power to forge the political will to promote institutional reform? the answer is globalization. i should note that the opinions i will express today are my own and not necessarily those of my colleagues on the federal open market committee ( fomc ). elements of institutional reform before examining the role of globalization in promoting financial development, let ’ s first look briefly at what steps must be taken to build an institutional infrastructure that will ensure a well - functioning financial system. 1. develop strong property rights strong property rights are needed to encourage productive investment because it will not be undertaken if the returns on investment are likely to be taken away by the government or others. hernando de soto, in his important book the mystery of capital, argues that the inability of the poor in developing countries to acquire property rights