individual countries. transparency alone cannot do the job of good bank regulation, but it is hard to imagine a solution to the international lending problems of the day without more transparent accounting. • the imf. last but not least i discuss the imf. frankly, my own feeling is that if an institution like the imf did not exist, we would want to invent something like it. here is an international institution that, at least in principle, can supervise the finances of different countries without the accusations of big brother that would come about if the united states alone tried to put itself in this role. moreover, it can organize other lending countries to bring support to countries in need of liquidity assistance, as opposed to having the bill fall entirely on the united states. supporting the existence of something like the imf does not suggest agreement with its exact structure or with all of its policies. the present crisis indicates that international preventive medicine provisions are weak. it may be difficult for the imf to perform this warning system role, but there is clearly a need for better warnings about the risks of lending to certain countries, to prevent currency vulnerabilities from building up as much as they did. the imf ’ s “ one size fits all ” recommendations of fiscal austerity should also be re - examined, because in many asian countries expansionary fiscal policies were clearly called for indeed, still are called for - while the imf initially recommended the reverse. but the two biggest criticisms of the imf involve the moral hazard issue and exchange rate flexibility. on moral hazard, the criticism is more or less inevitable. any time there is any governmental attempt to increase safety and soundness, moral hazard questions can be raised. in the case of the imf, if it is there to bail out countries in a liquidity crisis, countries will be more likely to end up in liquidity crises. the answer, it seems to me, is for the imf to attach tight conditions on its lending, so that countries will certainly not look forward to getting into debtor status. in terms of underlying structural change, this is one of the few leverage points the international lending community has on borrowing countries, and it is important for the imf to use its tool well. on exchange rate flexibility, the problem with the critics is that they are not saying the same thing. some say the imf is too quick to let the exchange rate fall, some say it is not quick enough. both cannot be right

zdenek tuma : euro adoption, acceding countries and financial stability speech by mr zdenek tuma, governor of the czech national bank, at the imf conference, prague, 3 february 2004. * * * ladies and gentlemen, dear colleagues, it is my pleasure and honour to address you during this high - level conference which we co - host at the czech national bank. today we had an excellent opportunity to exchange views on the preconditions and implications of adopting the euro in the acceding countries. these debates will provide us with a springboard for our discussions on euro adoption strategies, which are scheduled for tomorrow. even though the actual enlargement of the euro area still lies in the relatively distant future, the acceding countries have to be prepared well in advance. that is why last year was marked in most acceding countries by co - operation between central banks and governments to define their joint positions on the euro. many of the acceding countries subsequently published euro area entry strategies. in these documents they discussed the potential benefits and challenges of adopting the euro and outlined a roadmap for their entry. according to the traditional cost - benefit framework, one can expect that the acceding countries, which are mostly small open economies, will derive numerous benefits from adopting the euro. these benefits involve, among other things, a reduction of foreign exchange risk, and the elimination of the danger of exchange rate turbulence and crises. euro area entry provides an attractive solution to the “ fear of floating ” dilemma for these countries. the expected benefits should in the long run outweigh the costs associated with giving up national monetary and exchange - rate policies as adjustment tools. today, however, i do not want to focus too much on this traditional optimumcurrency - area debate. instead, i would like to highlight another aspect of euro adoption, the implications of euro adoption for financial stability. by reducing exchange rate risk and currency turbulence, monetary integration provides easier and safer access to foreign capital. therefore, it can be expected that it would lead to more efficient allocation of resources, faster real convergence, better inter - temporal consumption smoothing and more efficient diversification of risk. in this sense, euro area entry augments the benefits of international financial liberalisation. at the same time, it reduces many of the financial stability costs associated with the liberalisation process, such as currency crises, currency mismatches in the economy, and high exchange rate volatility. i would like to emphasis