opening remarks by mar guðmundsson, governor of the central bank of iceland, at a conference organised by the bank and the reinventing bretton woods committee on the uncertain future of global economic integration, harpa concert hall and conference centre, reykjavik, 14 - 15 september 2017. i welcome all of you to this conference and the foreign participants to iceland. the conference is organised by the central bank of iceland and the reinventing bretton woods committee. the heading is broad and probably reflects in part the worries that some of us might currently have about the future of global economic integration. the topic encompasses both real economic integration – that is, trade in goods and services and the flow of labour and equipment across borders – and financial integration – that is, cross - border capital flows and stocks and associated activities of banks and other entities. the financial integration part will probably dominate the proceedings, not least because most of the speakers are current or former central bankers. i do not see that as a problem, as in my mind more work remains to be done in assessing the costs and benefits of global financial integration than regarding real side economic integration. after all, the post - war global economic order was initially based on the principles of free trade in goods, current account convertibility, and monetary stability through fixed but adjustable exchange rates vis - a - vis the us dollar. open capital accounts were the exception, however. real side economic integration was seen to be more important for economic progress than financial integration. it worked well for a long while, and some call the period from 1950 to 1970 the golden years. yet there were inherent flaws in this set - up that contributed to its demise in the early 1970s, not least the well - known triffin dilemma regarding the conflict between the domestic economic objectives of the country providing the main reserve currency and the required international supply of that currency. then capital accounts were opened up, with strong momentum in the 1980s and early 1990s. capital controls were increasingly undermined by technology and financial innovation, and strong arguments were being made to the effect that open capital accounts would bring significant benefits. after all, ongoing real economic integration at a global level demanded at least some degree of global financial integration. as the bis reminded us in its latest annual report – and jaime caruana might touch on in his keynote speech later in this session – trade and finance tend to go together. freer capital movements in turn undermined pegged exchange rates and thus contributed to the spread of flexible exchange rate regimes and

- time restrictions that would impede or distort the operation of financial markets. this is good, and it should allay the fears of a return to the past. however there is a strong commitment “ to ensure that all financial markets, products and participants are regulated or subject to oversight as appropriate to their circumstances ”. the g20 further outlined the need to strengthen transparency and accountability, to promote integrity in financial markets and to reinforce international cooperation in the regulatory field, broadly endorsing the program and the division of labour agreed upon in this field by the managing director of the imf and the chairman of the fsf. the fsf, in the words of chairman draghi, is working in particular to ensure that financial systems would have more capital, less leverage and would be subject to more effective regulation. this would imply, inter alia, reducing the procyclicality of the regulatory framework and its reliance on “ selfregulation ” by market participants, which paves the way to “ regulatory capture ”. this is a welcome change from the attitude that allowed in the past a growing proportion of markets, products and participants to go unregulated on the grounds that “ they have no systemic impact ”. this is the attitude that brought to us the “ shadow banking system ” made up of unregulated sivs and conduits, distributing opaque structured products containing subprimes and other risky assets with the active marketing of unregulated rating agencies. obviously, the systemic impact of these g20 commitments will depend on the actual outcome of the negotiations underway in the relevant trade and regulatory bodies. turning, finally, to the anchor question i must say at the outset that this is the area where little progress has been made so far in official fora. the g20 declaration mentions the need to reform international financial institutions, but mostly to reflect more adequately “ changing economic weights in the world economy in order to increase their legitimacy and effectiveness ”. how can we be sure that these steps will ensure that a global crisis such as the present one will not happen again? pro - cyclicality is an inherent feature of all financial systems and it is likely that a mere rebalancing of power would not achieve significant results in the absence of effective supra - national mechanisms to promote stability - oriented macroeconomic policies at the national level, especially by systemically important countries. unfortunately, the g20 declaration has placed insufficient emphasis on measures against the perpetuation of