the financial markets and maintain financial stability. q & a session : david marsh ( managing director, omfif ) : it is sometimes said that there is a vacuum in leadership in the world. do you think it is about time for china to take a greater leadership role in the international monetary reforms? you mentioned a number of very positive developments in your speech regarding the chinese economy. it seems to provide a good platform for china to push forward some ideas about the reform of reserve currencies, the role of the sdr, institutionalizing the swap, and so on. 2 / 3 bis central bankers'speeches zhou xiaochuan : in recent years, along with rapid economic development, china has started to play a role in the international economic governance, including participating in the reform of reserve currency system and policy making in trade and financial stability. but china is still focusing very much on the domestic agenda, including further promoting economic development and regulatory reforms so as to keep pace with global development. we are pleased to see that imf has included the rmb into the currency basket of sdr. it ’ s encouraging and it will prompt china to adopt more reform and opening up policies, and support rmb to serve better as a freely usable currency. although china has strengthened cooperation with the international organizations, such as imf, bis and fsb, and participated in standard setting and rule making, we still have a long way to go in order to play a more significant role. as for the currency swap, it is an unexpected outcome of the global financial crisis. after the outbreak of the global financial crisis in 2008, due to the shortage of hard currencies and the difficulties in developing correspondent banking relationship on the part of commercial banks, some neighboring countries requested to enter into local currency swap agreements with china, in order to support and facilitate regional trade. we first signed an agreement with south korea, then with some asean countries and central asian countries. later on, the swap arrangements gradually expanded into other parts of the world, such as argentina, ukraine and egypt. therefore, currency swap arrangement is an unexpected outcome of the global financial crisis. china supports the further development of global safety net. in our view, the global safety net may be more efficient than bilateral arrangements. william r. rhodes ( william r. rhodes global advisors, inc. ) : last year, you expressed concern about the growing debt to gdp ratio. but you sound fairly optimistic about the issue this year. it seems that the government

do anything about the current account deficit or about the lack of savings from government policy or private choices. our manipulation of the overnight interest rate helps to keep the overall economy in balance - promoting price stability and production at the economy ’ s potential. but on the federal open market committee jack and i can do nothing to promote savings other than to provide a stable backdrop for private decisions. promoting savings is a job for fiscal and tax policy. if our trade and current account deficits move toward balance, foreign economies will face the questions of how to replace the demand that will no longer be coming from the united states and to reallocate production to a new mix of spending. the u. s. current account will not correct in isolation. the united states has been, in effect, exporting its demand overseas, supporting economic activity in foreign economies by importing more goods and services than we export. if our imports fall and exports rise, just the opposite will occur in the rest of the world. as our domestic demand is restrained relative to production, demand elsewhere will have to increase to foster global high employment. how that is to be achieved is an open question : structural reforms that improve the flexibility of the labor force and production and that foster growth abroad are a desirable way to contribute to better global balance, but macroeconomic policy adjustments to promote more domestic demand may also be required. it is simply not possible for all countries to enjoy stimulus from net exports ; some countries will need to be net importers, especially if the united states no longer fills that role. and so my two issues become related. the development strategies of countries such as china and other asian nations, to be successful, must be compatible with the pattern of adjustment in global demand that is required by the consumption, saving, and investment decisions made by market participants everywhere. conclusion the global economy seems to be facing major adjustments in several dimensions simultaneously. successful adaptation to changing circumstances will require flexibility on several fronts. no one can anticipate how events will unfold - the evolving geography and technology of the production of goods and services, the shifting balances between spending and producing as current accounts change. my fear is that poorly formed diagnoses and incorrect policy prescriptions will have unintended adverse consequences for our economy. any elements of rigidity - in exchange rates, in labor and product markets, in quotas and tariffs on international trade - limit the channels through which the adjustment process can work. rigidity concentrates stresses, increases the risk of