bilateral foreign currency swaps of considerably larger size, under which a central bank would offer us dollars or its own currency to another central bank in exchange for a corresponding amount of that other country's currency. the nature of such swaps is that no foreign currency risk is run by either country in the swap itself : the rate for the reverse transaction is contracted in advance. of course if the borrowing country sells the borrowed foreign exchange in order to support its own currency, it is then running a foreign exchange risk and the country initially supplying the funds is running a credit risk. the cmi swaps are mostly quite conditional – only a small portion of the money can be accessed without there being an imf program in place in the borrowing country. that proportion is to be raised, but even then the bulk of the funds will still be conditional. the overall size of the lines is being increased, and there is discussion about a collective activation arrangement, as opposed to the current one where the parties to each bilateral line presumably negotiate over activation. executives'meeting of east asia - pacific central banks. 2 / 4 this is certainly a useful step towards financial co - operation, and has considerable symbolic value. but it remains exclusively a lending facility, where the additional resources available to a country under pressure can only be used by taking considerable risk. there is no obligation on the other countries to make market purchases of the weakening currency. moreover, the cmi swap network has not yet been tested, and it is probably only workable when one or two countries come under pressure. if a number of countries are simultaneously experiencing pressure from capital markets, it would be only natural to expect a degree of reluctance to take on any additional obligations in defence of their neighbours. hence, there still seems to be a perceived need for a large degree of self - insurance in the region ( i. e. accumulation of large reserves of foreign currency ). efforts have also been made to accelerate the development of financial infrastructure. work under the banner of apec ( asia - pacific economic co - operation ) is seeking to promote securitisation and credit guarantee markets. the asean + 3 group is working towards the issuance of local currency debt by the multilateral institutions, with some success so far. the asian bond funds 1 and 2, initiated by the regional central banks, have made good progress. the idea here is essentially to work out how to set up cross - border mutual - fund type structures to invest in bonds issued by regional governments and

mr. greenspan ’ s testimony on the international economic and financial system testimony of the chairman of the board of governors of the us federal reserve system, mr. alan greenspan, before the committee on banking and financial services of the us house of representatives on 16 / 9 / 98. as i testified before this committee in the midst of the mexican financial crisis in early 1995, major advances in technology have engendered a highly efficient and increasingly sophisticated international financial system. the system has fostered impressive growth in world trade and in standards of living for the vast majority of nations who have chosen to participate in it. but that same efficient financial system, as i also pointed out in that earlier testimony, has the capability to rapidly transmit the consequences of errors of judgment in private investments and public policies to all corners of the world at historically unprecedented speed. thus, problems that appeared first in thailand more than a year ago quickly spread to other east asian economies that are relatively new participants in the international financial system, and subsequently to russia and to some degree to eastern europe and latin america. even long - time participants in the international financial community, such as australia, new zealand, and canada, have experienced the peripheral gusts of the financial turmoil. japan, still trying to come to grips with the bursting of its equity and real estate bubbles of the late 1980s, has experienced further setbacks as its major asian customers have been forced to retrench. reciprocally, its banking system problems and weakened economy have exacerbated the difficulties of its asian neighbors. the relative stability of china and india, countries whose restrictions on international financial flows have insulated them to some extent from the current maelstrom, has led some to conclude that the relatively free flow of capital is detrimental to economic growth and standards of living. such conclusions, in my judgment, are decidedly mistaken. the most affected emerging east asian economies, despite the sharp contraction in their economic output during the past year, have retraced, on average, only one - sixth of their per capita growth over the past ten years. even currently, their average per capita incomes are more than 2½ times the levels of india and china despite the unquestioned gains both have made in recent years as they too have moved partially to join the international financial community. moreover, outside of asia, several east european countries have made significant progress towards the adoption and implementation of market systems and have increasingly integrated their financial systems into the broader world context to the evident benefit of their