martin redrado : where is global finance heading? status of the international monetary system and the stake of emerging economies speech by mr martin redrado, governor of the central bank of argentina, at the session ii – emerging economies in the international financial system – the way forward, cusco, 13 - 14 july 2009. * * * the experience of having to deal with recurrent crisis over the last decades finally is payingoff for us, emerging economies. for the first time in recent decades, the emerging world is not at the epicenter of a financial crisis. we, developing economies, were “ learners of first resort ” that financial stability is a prominent goal for central banks. and, what is most important on the way forward, we are meant to be both the engine of the world economy but also to share the driver ’ s seat, which is a bigger role that comes with bigger responsibilities. while the global economy seems to be bottoming out, it is still gripped in what, in my view, will be a lengthy recession. in the developed world further adjustment is in the pipeline in a context of credit squeeze, growing unemployment and a deteriorating credit quality. we have not yet seen clear steps to what is needed in terms of long - term funding ; households and banks balance sheets repair ; and long - run fiscal and monetary sustainability, which could be a drag today but clearly is an issue for the medium term. in the emerging world, the correction is also taking place. and, in some cases, it is showing up the hard way. we witness asian economies suffering from a collapse on trade but mostly region - driven. figures reveal that u. s. imports did not fall as much as intra - asia trade. on the positive side, inventories data in east asia suggest that the retrenchment on industrial activity might be over. here, again, the “ green shoots ” could be the effect of anti - crisis packages rather than a more lasting effect with domestic consumption on the “ driver ’ s seat ”. collapsing global demand caused a sharp drop in the international prices of raw materials since their reached their peak in mid - 2008. during the first half of the year, however, prices showed some signs of stability and certain improvement. the outlook imposes a limit on a recovery, but it is expected that structural factors that are underpinning prices, will continue to prevail. we have been seeing lately a remarkable performance of quotations on both hard and soft commodities.

”, especially in relation to the approach that relies on the interest rate as the single instrument. same applies to managed floating exchange rate regimes. recent empirical papers that refined the analysis started by several academics argue against sharp fluctuations in the domestic currency. instead, mitigating excessive volatility, especially in developing countries with rather shallow capital markets and limited access to hedging, seems to be an appropriate policy. this kind of monetary and financial framework that ensures systemic stability has been my main task during the last years. this means giving priority to avoiding " the next crisis " and building buffers to minimize the effects of disruptions. in my country, the decades of macroeconomic instability and recurrent crises were not harmless in terms of welfare. these factors, which undermined the power of some traditional monetary policy instruments, have played a key role in the design of our current monetary and financial system. in particular, our risk management strategy based on four pillars ( calibrated convergence between supply and demand in the monetary market, managed floating exchange rate regime, development of external liquidity buffers, appropriate financial regulation and supervision ) is compatible with these aims as well as with the tools available. this scheme, which was carefully developed along recent years, now allows us to overcome each episode of stress, minimizing the impact on the real economy and avoiding inconsistencies that might make it unsustainable over time. recently, we have experienced periods to significant financial stress in the domestic market and our monetary and financial framework has delivered. the fact that we have successfully navigated four episodes of financial stress in the last two years ( july - october 2007, april - june 2008, september - november 2008 and march 2009 ) is an ample proof of the robust nature of the approach adopted by the central bank. in each of the events, we first reacted firmly to normalize the money demand and stabilize the foreign exchange market. then, with simple instruments, we ensured liquidity provision to guarantee systemic stability. finally, we implemented an array of measures including reforms on the markets for central bank securities, the development of additional mechanisms for liquidity provision, changes to enhance futures market depth and transparency, and instruments to facilitate supply of foreign currency. in particular, we acted to neutralize the effect on money supply of the increased demand for foreign currency by injecting liquidity, mainly through the redemption of central bank bills and notes ( lebac and nobac ) on the secondary market and partial renewals