certainly, recent experience in south africa suggests that the recovery in the rand over the past year has been an important factor in containing inflation. in part this recovery has reflected the general weakening in the dollar, and factors such as higher commodity prices have also been an influence. but the currency's recovery has also been an important channel by which monetary tightening worked its way through to the economy. if the relationship between interest rates and exchange rate movements were predictable, the effectiveness of the exchange rate transmission channel would be helpful to monetary policy. but in practice this relationship remains rather inscrutable. moreover, the fact that emerging market currencies are subject to volatility resulting from shifts unconnected with the country itself, such as the recent substantial adjustments by the dollar and the euro, means that movements in the exchange rate can have impacts on domestic monetary conditions that can be both large in their effects and impossible to anticipate. of course, it can always be argued that in these circumstances the central bank should try to moderate movements in the exchange rate in greater or less degree. but the instruments available, for example through capital controls or official intervention, if maintained for any period, do not have at all an encouraging track record and may have counter - productive side - effects by impeding desirable structural adjustment or actually increasing exchange rate volatility. the appropriate remedy is to stick to the fundamentals, focusing monetary action determinedly on low inflation while taking into account impacts from the exchange rate as one amongst a range of relevant influences. but it needs to be recognised that these impacts may be particularly significant for emerging market economies. a further distinctive feature is more straightforward, but can easily be overlooked - that policy - makers in emerging market economies tend to have less information available to them about developments in the economy. this is essentially a form of resource constraint. it applies to statistics, where relevant series may be available less frequently, or in less comprehensive or disaggregated form, or simply less reliable. in south africa, what was in origin a relatively minor distortion in the compilation of the cpi produced a downward revision, when it was discovered, of nearly 2 percentage points in the 12 - month rate of inflation. this at least had the merit of being a rare example of a good news shock. such events are not unique to emerging market economies : the uk and others have experienced problems with important statistical series from time to time. but diverting scarce resources to statistical compilation is inevitably a problem in an economy where the

contacts with market participants and receives valuable information almost automatically by virtue of its market presence ; similar to a seismograph, it may record tremors in the financial system at an early stage and react accordingly. moreover, in many cases the central bank is in a good position to strive for market - enhancing and prudentially justifiable deregulation and technical innovations. however, during liquidity crises, central banks should not assume an official, predetermined function of “ lender of last resort ” because of the associated problem of moral hazard. instead, liquidity crises should be solved by private or semi - private agencies before they reach the central bank. in germany the liquidity consortium bank serves as an example for such strategy in case of liquidity problems.