##s. while this is an issue which was already discussed before the crisis, some argue it might have been exacerbated as a result of policy responses to the crisis. indeed, some of the policy responses have been sub - optimal from a global vantage point. many countries have continued to accumulate large reserve holdings to limit currency appreciation. for instance, china ’ s reserve holdings now exceed usd 3 trillion ; those of russia usd 400 billion ; those of brazil, korea or taiwan usd 300 billion. others have adopted capital flow management measures, including higher reserve requirements and – sometimes – outright controls on capital inflows. some observers have claimed that “ currency wars ” might break out. this is why the efforts from the international community to better understand global liquidity developments, as well as how to deal with global liquidity shortages, in particular during crises, by the g20, the imf and by the central banking community at the bank for international settlements in basel are valuable undertakings. the agreement by g20 leaders on actions and principles that could help reaffirm the benefits from financial integration and increase resilience against volatile capital flows is commendable. this agreement provides coherent conclusions to guide countries in the management of capital flows. the first line of defence against excessive capital flow volatility should comprise sound domestic macroeconomic policy frameworks and institutions as well as appropriate exchange rate regimes, financial regulation and supervision. capital control measures should be temporary in nature and only used as a last resort, given that they may delay the necessary domestic policy implementation and distort the distribution of capital flows across countries. * ladies and gentlemen, when delegates to the congress of vienna first met in 1814, the new world that was about to emerge and which would last for almost another century was only barely discernible. the outbreak of the global economic and financial crisis is putting us in a similar situation today. throughout the world, citizens call upon policy - makers to act decisively to resolve the crisis and help the global economy turn a corner. all relevant authorities have to take their responsibilities. to ensure that this crisis can be fully addressed will require an ambitious strengthening of economic governance. significant reforms in this direction are taking place in europe. the eu council and european parliament have agreed on a legislative package that significantly limits the discretion of national authorities. this includes a framework for monitoring a wide range of macroeconomic imbalances, also backed by sanctions. countries are expected to anchor fiscal prudence in national rules. all these

of the adjustment in external imbalances since the crisis has been cyclical, not structural according to the imf, the us current account deficit is projected to reach about 3 % of gdp in 2011, against surpluses of roughly 5 % and 9 % of gdp for china and oil exporters respectively. they are a source of tensions that could ultimately lead to protectionist pressures. however, the euro area as a whole has a balanced current account position. global fiscal imbalances remain significant, with a marked degree of heterogeneity between advanced and emerging economies. consolidation efforts required to bring public finances to a sustainable path are a key priority for advanced countries. efforts made to adjust these imbalances remain clearly insufficient. this raises the risk, which i referred to earlier, of a disorderly unwinding down the line, with significant potential fallouts for global financial markets and the global economy. at their cannes summit on 3 – 4 november 2011, g20 leaders agreed on an action plan to lay the foundations for strong, sustainable and balanced global growth in the medium - term. this is welcomed. all g20 members made commitments, but they are sometimes imprecise. it is often unclear as to how these commitments can genuinely contribute to a rebalancing of global demand patterns. for instance, only a few of the g20 members explicitly reaffirmed their support to the solemn pledge by their leaders in toronto last year to halve fiscal deficits by 2013 and stabilise public debt ratios by 2016. large emerging markets have announced that they would enhance the flexibility of their exchange rate regime, but without indicating a specific time - frame when this would occur. europe is doing its share in committing to accelerate and further deepen the single market. more decisive policy measures to rebalance global demand patterns are still required, in particular to raise savings in deficit economies and increase domestic demand in surplus economies. all systemic economies could benefit from effective multilateral surveillance along with their international responsibilities. now is not the time to lose sight of the need to correct imbalances globally although our attention is – for good reasons – more focused on immediate challenges! * the second and related key global policy challenge relates to how best to address global liquidity conditions and volatile capital flow constellations. ample global liquidity conditions bis central bankers ’ speeches have the potential to push volatile capital flows into emerging economies. if they respond by accumulating reserves to cap exchange rate appreciation, this widens global imbalance