are two problems. the first are also inflation concerns, particularly if inflation expectations are less well anchored. the second are balance sheet effects in the form of unhedged foreign exchange denominated liabilities. this is the genesis of the fear of floating and was critical in the asian crisis. paul krugman ’ s second generation models capture this well. does the model in the paper here capture this? mostly. it captures the issue of the exchange rate not moving in line with the fundamentals. it doesn ’ t capture this balance sheet channel though, where the exchange rate depreciation hurts so much. why doesn ’ t the standard macro response work? that is, when the exchange rate appreciates, lower interest rates to ameliorate its impact. mundell - fleming would say to do that. it would also say use fiscal policy, which is not discussed in the paper. extreme reductions in interest rates can cause problems of excessive price rises in domestic asset markets. so could one turn to “ macro - prudential ” measures? these are effectively domestic capital controls on the locals, rather than the capital controls on the foreigners that the paper proposes. basically one is trying to make yourself less attractive to foreign capital inflow. that ’ s the fundamental issue here in this paper. that has posed an interesting conundrum in australia in recent years. we have been experiencing a “ boom with gloom ”. we have had the difficult balancing act of trying to tell foreigners that the economy is not as good as they think it is, so stop sending us so much capital, while at the same time trying to convince the locals that the economy is not as bad as they think it is. now that ’ s a real dilemma! in the end i see the model in this paper as proposing capital controls to address the distortion of the exchange rate moving out of line with the fundamentals. basically it boils down to the tinbergen principle. with only monetary policy, there is one instrument and two objectives. give me another policy instrument and it is easier to hit the two objectives. but other potential instruments are not considered in the paper. for example, intervention in the foreign exchange market in the form of reserve accumulation, which has been used in many emerging markets. this is helpful on the way in, in terms of dampening the inflows, but it also helpful in dealing with the outflows when they come. bis central bankers ’ speeches moreover, the paper is silent

guy debelle : the fx global code speech by mr guy debelle, deputy governor of the reserve bank of australia, at tradetech fx eu, hybrid conference, 8 september 2021. * * * thanks to matt boge for his incredible assistance over my term as chair, as well as grigoria christodoulou and the other members of the gfxc secretariat. tonight i will talk about the recently completed review and update of the fx global code. the updated code was released on 15 july. 1 tonight i will remind you about the important role the code plays in the foreign exchange ( fx ) market. i will summarise the parts of the code that have been updated and talk about the accompanying papers on pre - hedging and last look. fx global code the fx global code was launched in may 2017. it was a direct and important response to the lack of trust the foreign exchange industry had been suffering on the back of a number of instances of misconduct in the market and the associated multi - billion dollar fines. this lack of trust was evident both between participants in the market and, at least as importantly, between the public and the market. the lack of trust was impairing market functioning. the market needed to move towards a more favourable and desirable location, and allow participants to have much greater confidence that the market is functioning appropriately. it is also important to remember what the alternative was in the aftermath of the scandals. there was a decent chance authorities could conclude that a substantial regulatory response was necessary to generate the desired improvement in market structure and conduct. but the code provided the opportunity for the fx market to address the lack of trust and market dysfunction. the code was developed through a public sector – private sector partnership. it was a joint effort of central banks and market participants drawn from all parts of the markets : from the buy side, including corporates and asset managers, and the sell side, along with trading platforms, ecns and non - bank participants. the membership was also from all around the world, drawing from the various foreign exchange committees ( fxcs ) across the globe comprising all the top 15 fx markets by turnover, both advanced and emerging markets. the global foreign exchange committee ( gfxc ) that maintains the code has since expanded to 20 members. the code set out global principles of good practice in the fx market to provide acommon set of guidance to the market. the 55 principles in the code cover ethics, information sharing, aspects of