##atility of its exchange rate. for the whole international system, however, they may simply displace the pressure to other countries or asset classes and exacerbate, rather than reduce, overall volatility. there might be ways to eliminate those negative effects by creating a predictable framework defining the circumstances, modalities and conditions trough which temporary or permanent controls would be implemented. third, it is important that countries which decide to open their capital markets be adequately protected against external financial shocks. emerging countries have constantly sought to expand their foreign exchange reserves from 4 percent of gdp in 1190 to over 20 percent on average today. reserves act as precaution against possible abrupt capital outflows. they also serve to provide liquidity to domestic financial institutions. they are used as a tool for internal – as well as external – financial stability. the need for national reserves could be reduced if credible mechanisms exist to provide for the supply of official liquidity on a multilateral basis. hence the current search for financial safety nets which has taken first stage in the g20. significant progress has been achieved in this direction during the recent period with the creation by the imf of new facilities and a new sdr allocation, the biggest ever, for the equivalent of 250 bn usd. more needs to be done and work should be undertaken to find sources of international liquidity truly substitutable to reserves without creating undue and excessive moral hazard. and, finally, an important question is to find, in the future, reliable international stores of value. the crisis has amplified the “ asset shortage ” as some instruments, up to now considered as riskless, have proved very vulnerable to changing financial conditions. the ability of the private sector to create “ safe ” assets through financial innovation has proved largely illusory. so, in the period to come there may be both an increased demand worldwide for risk free assets and much less certainty on their future supply. the search for a reliable international store of value has been going on for many decades. when discussions were held to build the bretton wood system, keynes proposed the creation of a new international currency, the “ bancor ” which could serve both as a source of liquidity and a store of value. thirty years ago, there was extensive discussion in the imf on the creation of a substitution account. most recently, in 2009, governor zhou has reopened the debate and suggested, over the long run, the creation of a new “ super reserve ” currency,

while, in the meantime, enhancing the role and status of the sdr. there are good arguments to create international instruments providing a reliable store of value. there are also conceptual and political difficulties. a choice would have to be made as to the true nature of the “ super reserve currency ”. would it be a basket of existing monies such as the sdr today? or would it be a new “ fiat ” currency? more fundamentally, a new reserve currency would, in fact, grant a collective guarantee against exchange risk. this guarantee would benefit surplus countries and would be given by deficit countries. when the substitution account was discussed more than 25 years ago, it became clear, at the time that it would have to be part of a package encompassing explicit, binding and symmetric rules on balance of payment adjustments. most likely, the same questions would be raised again today and the creation of a new reserve currency would have to be part of a broader framework. that may take time, as our chinese colleagues are fond of reminding us when we discuss those issues. in the meantime, financial development in emerging economies can go a long way towards expanding the range of safe and liquid financial assets available to domestic and international investors. capital markets in local currencies have developed significantly over the last decade as fiscal positions in emerging countries have dramatically improved. there seems to be considerable scope for regional financial and monetary arrangements to prosper in the future. those huge pools of savings currently available can be intermediated locally instead of going through financial systems located in advanced economies. regional financial markets would have to complemented and underpinned by monetary arrangements. asian countries are working on and implementing progressively such schemes through the chiang mai initiative. we, in europe, monitor closely those evolutions as well as the progressive emergence of the rmb as an international currency. as you know, we have a long and successful history of economic, financial and monetary integration. we have learned a lot and, still recently, gone through many crises and difficulties. nevertheless the euro, which did not exist fifteen years ago, stands today as one of two major world currencies. we certainly don ’ t pretend our own experience should constitute a model or an example to be followed. i have, however, one certainty : a strong and permanently renewed spirit of cooperation has allowed us to overcome many obstacles and to reap many benefits in terms of prosperity and stability. in a world full of opportunities, but also increasingly complex, this may be an inspiration for all