relative prices that should bring about a reduction in oil consumption and the use of alternative sources of energy. national governments should not discourage such a process. one important question is whether the present low volatility will reinforce or undermine financial stability. there is no one answer in this respect. on the one hand the factors mentioned earlier have undoubtedly improved the structure and operation of the markets, while on the other the limited volatility, combined as it is with exceptionally low interest rates, has prompted many investors to seek higher returns, which may have led them to take excessive risks. another type of danger comes from the very sophistication of the markets : financial derivatives are likely to amplify the effect of disturbances in periods of stress, when market liquidity diminishes ; similarly, hedge funds ( although helping to increase market liquidity ) are likely to accentuate the variability of asset prices. finally, in a long - term perspective there remains the problem of deciding whether the reduction in volatility is a permanent phenomenon or not. even if it were permanent, there are doubts whether investors would be able to cope with large and persistent disturbances, which cannot be ruled out a priori. if investors ’ portfolio choices are based on market prices, which in turn incorporate the expectation of low volatility, these could be affected by sudden shifts in such expectations. to conclude, there is profound uncertainty about the nature of today ’ s financial volatility. in view of the seriousness of the international payments imbalances and the enormous cost of adjustment, the international financial institutions provide the natural fora in which to exchange information and initiate action. the objectives, levels and methods of international economic cooperation have been profoundly influenced by the development of closely integrated private financial markets. the scope of cooperation has broadened, spreading from the traditional field of macroeconomics and coordinated economic policies to the sphere of market structure, regulation, supervisory practices, standards and rules of conduct. the number of organizations and agencies dedicated to cooperation has increased, reflecting the need for a more efficient division of labour and variously involving features and elements proper to the private sector. since its creation in 1944 the international monetary fund has enlarged its membership from the original 40 countries to the present 184, thereby becoming the world ’ s largest multilateral financial institution. its traditional functions ( of “ surveillance ”, lending and technical assistance ) have undergone significant changes. the imf ’ s financial function remains hinged on its original structure as a “ credit cooperative ”

and national supervisory authorities responsible for financial stability of the seven leading countries, australia, the netherlands, hong kong and singapore. in addition, meetings are attended by representatives of the international financial institutions ( the imf, the world bank, the bis and the oecd ) and self - regulatory bodies in the banking, corporate, insurance and accounting fields. the forum ’ s mandate is : a ) to assess vulnerabilities affecting the international financial system ; b ) to identify and oversee action needed to address these ; and c ) to improve coordination and information exchange among the various authorities responsible for financial stability. among the potential sources of vulnerability, the forum has addressed the issues of the role of offshore financial centres, the operation of highly - leveraged financial institutions, the volume and variability of capital flows, the transfer of credit risk, reinsurance companies, corporate governance rules and, more recently, the activity of hedge funds. the forum has also encouraged the adoption of standards and codes of conduct established at international level. as a general principle, the attention of the forum is focused on the intermediaries and infrastructure of the financial sector rather than on individual countries and on structural, financial and regulatory problems rather than those of a cyclical, real or macroeconomic nature. its ultimate aim is to prevent crises, not to forecast or manage them. looking ahead, one cause for concern is the danger of the present period of low volatility in the markets coming to an end without financial institutions being adequately prepared. this is all the more likely at a time of transition such as the present : it is becoming increasingly difficult to incorporate the flow of financial innovations into complex risk management systems. it is therefore important for regulators to possess accurate and up - to - date information on the size and distribution of risks, the nature of the investors holding them, the structure and liquidity of markets, and the functioning of new financial products. in order to ensure that financial institutions have a better understanding of the new risks and are equipped to manage them efficiently, it is also necessary to verify the solidity of their internal control mechanisms and improve the collection of statistical information. this process entails costs, which could be considered excessive if problems proved to be episodic and on a limited scale. the fsf can make a decisive contribution to assessing the costs and benefits in close cooperation with the private sector. the acceleration of world economic growth in the last few years is part of a longer - term trend. the introduction of market mechanisms and