" the case for an international banking standard ", institute for international economics, washington, april 1997. - 11 - against the systemic transmission of instability. transparency and disclosure have an obvious role to play here. fourthly, and lastly, the international monetary system. here, too, the power of market forces seems likely to grow. this has the potential for beneficial consequences insofar as bad policies are disciplined and good policies are rewarded. but it would be naive to suggest that market forces always get it right. my expectation is that efforts will need to be devoted to promoting greater stability in the market - led international monetary system. the bulk of these efforts will be in the direction of improving policies ( and their mutual consistency ) and making markets more transparent ( e. g. through better information ). but it cannot be excluded that more direct measures will be required to limit damaging exchange rate fluctuations or contain the cost of currency crises. taken together, this presents a full agenda for central bank policy - makers. i noted at the outset of this lecture that “ the last twenty - five years have been an eventful time for central banking ”. the years ahead promise to be no less eventful.

given the historic steps that have been taken with the fed ’ s balance sheet. this challenge, which involves operating in uncharted territory along several dimensions, will inherently involve some uncertainties and risks. however, as i hope is clear from my remarks, the federal reserve ’ s efforts to date should minimize those risks. indeed, i believe the fed ’ s efforts have been prudent along a number of dimensions. as a first step, we have been careful to make sure we have an adequate set of tools. to that end, we have developed multiple tools that can be used for draining reserves, in order to ensure our capability to do so. moreover, we have been testing those tools and will continue to take steps to ensure that we and the markets are prepared to use them in more significant volumes when needed. developing the tools is not enough, though. as a second step, policymakers will need to formulate a strategy for using them in an appropriate manner to avoid any undesired outcomes for financial markets and the economy. the fomc is actively engaged in determining that strategy, as indicated in the fomc minutes from the january meeting. the strategy to be employed has not been fully decided, but recent speeches by fomc members and the recent fomc minutes have begun to convey some of the possibilities. many of the potential steps described seem to guard against the risks involved. for example, reducing the size of the fed ’ s balance sheet through redemptions for now will produce a gradual adjustment that will be easier for the markets to digest. in addition, steps taken to drain reserves ahead of policy tightening may best ensure the success of interest on reserves at influencing other short - term interest rates. overall, an approach along these lines should help to ensure a smooth exit from the current accommodative stance of monetary policy. moreover, if the fed ’ s intentions are well communicated to the financial market participants, they too should be fully prepared and in the best possible shape for navigating this exit.