nout wellink : no globalisation without innovation speech by dr nout wellink, president of the netherlands bank and chairman of the basel committee on banking supervision, at the 2007 money and banking conference " monetary policy under uncertainty ", hosted by the central bank of argentina, buenos aires, 4 june 2007. * * * introduction i grew up in a small dutch village. although it was not in a polder, to me the world seemed flat. it took several years before i saw mountains for the first time and realised that the world is not flat. the generation of my grandchildren misses this kind of experience. flying long - distance at early age is no longer exceptional in the more prosperous parts of the world. the world has changed dramatically in the course of decades. information technology has brought us many new opportunities, in particular mobility of people, goods and ideas. i ’ ll discuss technological progress, and what it means for the macro economy in general, and for monetary policy in particular. globalisation is driven by technological change there are at least four manifestations of technological change that have dramatically reshaped the world over the past decades : • what we see in major cities are people from all over the world. what lies behind this is cheap and fast air traffic. competition is a driving force. so is technology, which makes air transportation more efficient, and management skills that allow for splitting up the market in high yielding business - class tickets and low cost fares. • what we see are cheap imports from china everywhere in the western world. what lies behind this are low transportation costs thanks to the cargo container. the cargo container can move non - fragile goods for about 1 % of retail value to anywhere in the world. in the precontainer era, shipping costs used to be between 10 and 20 % of retail value. 1 apart from low transportation costs, additional factors are needed to explain the surge in asian products in western markets. in particular the catch - up of asian economies is creating new trading opportunities. • what we see is offshoring of labour - intensive production to low - wage countries. what lies behind this is that new technologies allow the production process to be unbundled. production sites are located far from target markets, both in manufacturing and in the service industry. the share of offshored inputs in gdp can reach up to12 %, as in canada and the netherlands. 2 • what we see is low - skilled labour in the west feeling a cold wind of competition from

the bank. therefore, dnb had extensive talks with the authority for the financial markets on this issue, as interests clearly conflicted. these talks ultimately led to the consideration that the bank had to be penalized for not being compliant with conduct of business regulations, as long as this would not endanger the stability of the financial system. an objective - based setup thus promotes a transparent consideration of interests. in addition, linking the regulatory objectives to the supervisory structure also improves supervisory efficiency. in particular, a major advantage of objectives - based supervision is that responsibilities are consolidated in areas where natural synergies take place. while prudential supervisors focus on risks and the management of risks, conduct of business supervisors concentrate their efforts on disclosure issues and sales and marketing practices. confidence in objective - based supervision has been supported by the us treasury blueprint for a modernized financial regulatory structure, which states “ an objective - based regulatory approach would represent the optimal regulatory structure for the future ”. let me conclude. i began my speech with the changing world economic order. indeed, the balance of power is shifting. emerging economies will produce and consume an increasing share of world economic output. with more economic and political power comes more responsibility. in this respect, the increasingly active role of emerging countries in addressing global problems is encouraging. one important challenge we all face now concerns global financial stability. to promote financial stability now and in the future, cooperation between macroprudential supervisors and microprudential supervisors should be strengthened. especially when the good times return – and they will – this will prove challenging. the international cooperation between financial supervisors should also intensify, as the current financial crisis has clearly shown. regarding the different objectives of financial supervision, recent experiences have reinforced the arguments in favour of objective - based supervision.