base will solidify economies ’ internal strength and lessen the dependence on external demand. much can also be done on the financial side. deep and liquid markets would help to absorb swings in capital flows without overly large price movements. the availability and widespread usage of risk management instruments, particularly foreign currency hedging, would mitigate the negative repercussions from asset price volatility. outward capital flows by domestic investors can enhance stability as international asset holdings can provide an important buffer during periods of volatility. last, but not least, limiting leverage in the banking system can go a long way in cushioning the economy from external shocks. in most cases, exchange rate flexibility will be an indispensible part of living with capital flows. while there are certainly grounds for limiting exchange rate fluctuations to prevent temporary misalignments, targeting exchange rates is likely to be counterproductive in the long - run. doing so requires policymakers to choose a level of the exchange rate to stabilize around. this can be very difficult to implement in practice, not least because the target would change over time as fundamentals evolve. importantly, there is little that monetary policy can do to influence real exchange rates in the long run. past attempts to give the exchange rate more weight in monetary policy decisions tended to generate more interest rate volatility, with little lasting effect on the real exchange rate. here, i should note that emerging markets are generally better placed than in past cycles to withstand capital flow volatility. key areas where progress has been made include : more flexible exchange rates, clearer monetary policy frameworks, larger foreign reserve cushions, generally moderate external debt levels, improved fiscal discipline, and better capitalized banking systems, supported by stronger supervisory and regulatory frameworks. moreover, the general shift away from debt - based finance towards equity and foreign direct investment, which together now account for two - thirds of emerging market financing, is significant from a stability perspective. nevertheless, i want to stress that there is an enormous amount of heterogeneity among emerging market economies. the underlying strengths and weaknesses in terms of institutions and economic capabilities of thailand and brazil, for example, are very different. the destinies of emerging markets are not tightly bounded to each other like general cao cao ’ s battleships. the more the international investment community succeeds in differentiating each country ’ s prospects, the better the outcome will be, both for investors ’ returns as well as the countries involved. ladies and gentlemen, i

euro crisis. a flexible exchange rate regime allows flexibility in responding to exchange rate movements. however, in a world where global liquidity is especially fluid due to loose monetary policies in the us and the euro zone, can exchange rates move out of line with fundamentals for prolonged period of time? this is an issue that faces not only australia and thailand but also the region as a whole. as a life - long central banker, i ’ m sure governor glenn stevens can give us the broader perspective on this issue. 4. i sincerely hope that the common lessons learned from our experiences within the region will help us, and indeed other central banks, better manage the complexities of the global economy. 5. before we hear from governor stevens, i wish to take this opportunity to thank all guests for joining us at this policy forum to mark the 70th anniversary of the bank of thailand. many of you here have been an integral part of our policy progress over the past many years. on this note, may i propose a toast of appreciation to all of you and of hope that many of you will continue to support a common vision toward building further policy progress for the well - being of all thais in years to come. 6. thank you. bis central bankers ’ speeches