as ‘ risk on, risk off ’ behaviour – and while this facilitates external financing in periods of elevated risk appetite, it can also reduce domestic policy autonomy. in fact, in a world where more conventional monetary policies are in place, financial risk may be priced more accurately, resulting in proper market rewards for good policies see ‘ are countries losing control of domestic financial conditions? ’ in the global financial stability report, published by the international monetary fund in april 2017. page 4 of 8 – an incentive for policymakers to implement prudent policies. a reduced role for cross - border capital flows, or a lower level of dependency, could also provide more protection for emerging markets in periods of a global crisis, as it would reduce the risk that advanced economies ’ fund managers and banks would withdraw their investments or loans in a rush. in fact, this might greatly reduce the risk of financial crises, as international financial exposure is managed in a more risk - conscious manner. at the same time, a lesser degree of financial globalisation could help to reduce global imbalances. sizeable cross - border reallocation of capital allowed the persistence of large current account deficits or surpluses in some countries which posed threats to global financial stability. in some countries, capital inflows have exceeded financing needs, and are either being recycled into excessive domestic credit growth or forcing authorities to accumulate sizeable and costly foreign exchange reserves. in other countries, large deficits fuelled strong increases in external liabilities, endangering macroeconomic stability and putting sovereign ratings at risk. 5. role of international organisations and regional financial cooperation it is important, however, to recognise that the optimal economic development of emerging countries is still likely to require access to international financial markets. however, these countries may increasingly have to seek such opportunities within the emerging region itself. with regard to financial coordination, there are two issues that have a strong bearing on vulnerabilities in the international financial architecture that require global action from international organisations such as the international monetary fund ( imf ) and forums such as the g20. the first issue relates to the management of capital flows. the gradual liberalisation of capital flows in countries with large external surpluses provides additional scope for the foreign financing of emerging economies. however, excessively volatile capital flows and the related spillover effects remain key concerns for many emerging market economies. in instances where these are accompanied by increased credit extension and posing a threat of increased financial stability risk, a page 5 of 8 sharp focus on

the management of systemic risks is of importance. in assisting countries to deal with the unintended consequences of these excessive capital flows in a manner that promotes sound policies and strong frameworks – including monetary policy and exchange rate flexibility – as the first line of defence against excessive capital flows, the imf published a guidance paper titled “ the liberalization and management of capital flows : an institutional view 5 ”. south africa ’ s approach to capital flow management has been broadly in line with the imf ’ s institutional view. we have adopted a relatively hands - off approach to managing capital inflows, allowing the exchange rate to act at as a shock - absorber, while monetary policy is not focused on the exchange rate but rather on the possible inflationary implications of exchange rate movements. as you know, the organisation for economic co - operation and development ( oecd ) is currently reviewing its code of liberalisation of capital movements ( code ). the imf is also participating in the review of the oecd code. continued cooperation between the imf and the oecd remains crucial for addressing any perception that countries might receive seemingly conflicting signals, or policy advice, regarding the appropriateness of capital flow measures. additionally, the support from the imf through the establishment of the data gaps initiative framework, aimed at supporting enhanced policy analysis of risk in the financial sector as well as an analysis of vulnerabilities, interconnections and spillovers, including cross - border risks, promises to be of great use. let me now address the second issue, which has to do with the adequacy of the global financial safety net ( gfsn ) at national, bilateral, regional and global level. members of the g20 have agreed to collaborate closely to advance cooperation and form consistent policy stances with the aim of advancing structural reforms, fostering economic resilience, promoting infrastructure investment, and promoting the stability of the international financial architecture – all to enforce stronger, more sustainable, more balanced, and more inclusive growth. imf policy paper, 14 november 2012. “ the liberalization and management of capital flows : an institutional view ” page 6 of 8 in this regard, the imf could assist by applying a consistent approach to the monitoring and surveillance of countries to help identify potential risks and shocks that could emanate from the global financial system. the g20 hamburg action plan called on “ the imf to further enhance the effectiveness of its lending toolkit in line with its