agreements. they agreed to establish a monetary order based on fixed exchange rates, together with a process to realign exchange rates in the event of fundamental imbalances. important institutions, such as the international monetary fund, the world bank, and the general agreement on tariffs and trade, were also established. but since the 1970s, many economies have adopted flexible exchange rate regimes. in general, these regimes have been able to coexist with fixed exchange rate regimes, and to do so relatively well in a world of open capital markets. however, the success of this coexistence has depended on countries following " the rules of the game " appropriate to the exchange rate regime they have chosen. what do i mean by " the rules of the game "? for countries with a flexible exchange rate, this means that authorities should actually let their currency float freely. and for countries with a fixed exchange rate, this means that authorities need to run appropriate policies in order for the fixed exchange rate to be sustainable. in particular, countries with a fixed exchange rate and a current account surplus should not " sterilize " the foreign exchange interventions required to fix the value of their currency. by " sterilize, " i mean offsetting the effect of interventions on the domestic money supply. recently, problems have arisen from countries not playing by the rules of the game. certain asian economies have been stifling the inflationary effects of their interventions and, in the process, building up massive amounts of foreign reserves. when countries offset the effects of intervention, they delay domestic economic adjustment. they also delay global adjustment. just as worrying is the fact that such intervention is provoking threats of protectionist measures in certain political quarters. such wrong - headed measures could choke off the growth of international trade that has led to rising incomes worldwide. what is needed today is a renewal of the international monetary order and of the spirit of international co - operation that led to the original agreements. the global economy has changed enormously since the end of world war ii. but the danger posed by global imbalances is a clear reminder that there is still a need for a coherent international monetary order - and a need for countries to play by the rules. in this context, it is also very important that all countries work to protect and enhance the free flow of goods and services by finding a way to break the stalemate at the doha round of trade talks and by strengthening the world trade organization. we all need to support these efforts and

in which many of you are involved - have done a good job of matching international savings flows with investment opportunities. international capital flows are the lifeblood of the global economy. however, the sheer size of these financial flows into the united states is not sustainable indefinitely. we know that u. s. external indebtedness - even with that country's reserve - currency status - cannot keep growing forever. this is especially so given that this borrowing is being used mainly to finance current consumption. we also know that in many places outside the united states - particularly in asia and in many oilexporting countries - households currently want to save more than businesses want to invest. at the same time, desired national savings in the united states are not sufficient to meet desired investment, although it is not certain that this situation will persist. eventually, domestic savings in the united states will have to increase. should that occur suddenly, we could see global economic growth slow sharply, unless there was corresponding growth in domestic demand outside the united states. such a slowdown in growth, in turn, raises the risk that policy - makers might resort to protectionism. in that event, a period of very slow growth could, perhaps, be punctuated by periods of outright recession. i hasten to add that this is not a prediction on my part. i am only saying that such an outcome could be the consequence of inappropriate policies in many economies. and this outcome would hurt all countries, including those that are following appropriate policies. global imbalances are a global problem, and we need to think about them collectively. so how can we achieve their orderly resolution? let me spend a few minutes talking about what is needed, both domestically and internationally, to help resolve the imbalances. appropriate domestic policies support confidence one of the keys to changing the flows of global savings and investment is for each country to follow policies that have the best chance of achieving sustained growth in the medium term. the best way to ensure that global demand continues to grow over time is for policy - makers to provide an environment that gives households the confidence to spend and businesses the confidence to invest. if all countries were to follow appropriate domestic policies, this would go a long way towards defusing the danger posed by global imbalances. specifically, in terms of fiscal policy, there is a clear need for countries to focus on having a sustainable ratio of public debt to gdp. this would give confidence to businesses and consumers that the value of their money will not