mr king gives a speech on reforming the international financial system : the middle way speech delivered by mr mervyn king, deputy governor of the bank of england, to a session of the money marketeers at the federal reserve bank of new york on 9 september 1999. * 1. * * introduction one of the roles which international financial officials are sometimes required to play is to describe disasters as triumphs and to make the dramatic seem bland. so, on 16 september 1992, following massive speculation against sterling and its withdrawal from the exchange rate mechanism, the then chancellor of the exchequer, norman lamont, opened his statement with the words : “ today has been an extremely difficult and turbulent day ”. in the seven years since, several finance ministers have had cause to echo those words. officials have spoken of the risks associated with capital flows. well they might. sharp reversals of capital flows to emerging markets have caused crises with a frequency and on a scale that threaten support for an open, market - led international economy. these crises have created millions of victims, whose circumstances and aspirations were totally unrelated to financial markets. in korea unemployment tripled, in indonesia several years of economic growth were wiped out leading to political instability and similar results have been visible in other parts of asia as well as latin america. over the past century, governments in the industrialised world have, in the wake of domestic financial crises, taken steps to regulate and strengthen the financial system. is there a similar need to change the rules of the game for the international financial system? capital markets do not operate on their own. they need an adequate legal and supporting infrastructure for participants to engage with each other. there is no magic wand that can be waved to create such an infrastructure internationally. short of a world authority, what is required is a patient process of building such an infrastructure. some have described this as a need for new architecture, others as a need for plumbing. i prefer to speak of bricklaying. but after innumerable meetings of ministers and governors, deputies, deputies ’ deputies and so on, we still do not have an adequate building. recent crises have shown that the need is not for a lavish palace, but simply a roof over our heads. we need to get to the point where less time is spent on the role of the imf in handling crises and more on the role of the world bank in promoting development. so where should we start? in order to answer that question it is necessary to understand the causes of recent

comes into its own. the aims of transparency are to allow better informed decisions in both public and private sectors, to reduce the risk of contagion by allowing markets to differentiate among borrowers and to encourage macroeconomic policy to become more predictable. transparency is not simply a question of making available certain data. it is an approach to economic policy, almost a way of life. the g22 report of the working group on transparency and accountability ( which i was privileged to co - chair with andrew sheng of the hong kong monetary authority ) was published in october 1998. its recommendations were endorsed in full by the g7. it stressed the importance of transparency in three different sectors : national governments, the private sector and the international financial institutions. good progress has been made in implementing many of its recommendations. rather than give an exhaustive account of progress in transparency, let me give a few examples. in march of this year, the imf ’ s special data dissemination standard was strengthened by the inclusion of a template covering the disclosure of net foreign exchange reserves and short - term foreign currency liabilities of central government. these data are required to be published monthly with a lag of no more than one month, and the transitional period for observing the standard runs to the end of march 2000. agreement is very close on a code of monetary policy transparency to match the earlier code on fiscal policy transparency. bis data on international banking statistics will be produced quarterly from next spring and the lag in publication shortened. one of the three financial stability forum working groups is considering the quality and timeliness of disclosure of exposures to and of highly leveraged institutions. this category includes hedge funds. proposals for direct regulation of internationally mobile funds are unlikely to be workable. but many commentators remain suspicious, regarding such funds as like children playing just out of sight who are told – “ i don ’ t know what you ’ re doing, but, whatever it is, stop it ”. the imf itself has become more open about the release of information. during an eighteen - month experiment countries will be able to publish their article iv reports. and more background information, including policy papers and programme reviews, is now available. all this should improve the transparency and accountability of national governments, the private sector and the imf. but there is one further step on which progress is urgently required. in a world of sovereign states, countries cannot, and should not, be compelled to disclose information if they do not wish to do so. but countries