markets and products. for example, the use of capital controls and foreign - exchange interventions — particularly the repeated use of them — can undermine the longer - run development of deep and liquid domestic financial markets. appropriate guardrails are required to ensure that short - run actions do not get in the way of needed development. otherwise the short run can become the long run. there is another knock - on effect. faced with elevated volatility, emes are taking out more insurance by accumulating reserves ( chart 2 ). - 5chart 2 : reserve holdings by emerging - market economies remain high official reserve assets ( including gold ) us $ billion 9, 000 8, 000 7, 000 6, 000 5, 000 4, 000 3, 000 2, 000 1, 000 china source : international monetary fund international financial statistics emerging - market economies, excluding china last observation : july 31, 2021 at a minimum, this self insurance looks globally inefficient. and this demand for reserves is contributing to a shortage of reserve assets, which may be reinforcing the decline in the neutral rate of interest. this in turn raises the risk of liquidity traps and can lead to the buildup of financial vulnerabilities everywhere. turning to longer - run challenges, there are several. the first involves the welcome evolution of countries from frontier to emerging to advanced economies. as these economies grow and increase in importance, their integration into the international monetary and financial system will become more pressing. early on, they may not have a well regulated and stable domestic financial sector, or open trade and capital markets that promote economic integration. the international community needs to develop and invest in a clear long - run strategy to assist with the smooth integration of these countries into the global system and to encourage them to adopt the rules that guide this system. a second longer - run challenge is the choice of exchange rate regime. we ’ ve seen how a freely floating exchange rate may lead to excess volatility in response to short - run disturbances. but to accommodate longer - run structural changes that are essential for sustained development, some margin of flexibility is needed. if nominal exchange rates remain fixed, then domestic prices and wages have to adjust, and this can be protracted and painful. in particular, if domestic prices and wages need to fall, this is likely to require an extended period of weak demand and high unemployment. in the medium run, the real exchange rate moves and the system adjusts, but the cost of

, and currency mismatches on balance sheets increase the costs. 5 but the system needs guardrails to make sure currency intervention does not get in the way of needed relative price adjustments. at the bank, we would like to see the development of a framework for exchange rate management similar to that in the imf ’ s institutional view for capital flow management. such an agreed - upon framework could guide managed floating exchange rate regimes to make sure they do not stall adjustment in the medium to long run. the focus here should be on a coherence between the choice of exchange rate regime and other policies. in the end, policy - makers need to recognize that capital account and currency interventions should be targeted to address specific concerns, and these 5 the us dollar has become the dominant currency in pricing many goods that countries trade. consequently, exchange rate movements may affect the price of imports relative to domestic goods, but they may not immediately affect the price of exports relative to foreign goods. this, in turn, would reduce the role of exchange rate movements in facilitating adjustment. - 7interventions should be temporary. over the longer run, countries should plan to rely less on these policies as their financial systems mature. in the shorter run, every time these interventions are used, a clear exit plan should be in place. and the circumstances under which interventions may occur should be well defined, so that an exit can be facilitated when conditions are no longer met. global cooperation and resources are also required to agree on a long - run vision for the international system. considerable resources have been devoted to the management of short - term liquidity and volatility issues, and that has been necessary and important. global policy - makers need to balance this effort with greater focus and resources to promote longer - term economic and financial development. the imf ’ s multilateral role in surveillance is essential — the global system needs to be managed as a system. and the financial stability board is doing valuable work with peer review and assessments to strengthen adherence to international standards. my hope is that we can build on these elements to deepen the engagement of systemically important economies on an international monetary and financial system that maximizes the benefits of economic and financial integration. in canada ’ s experience, the destination is one with open capital markets, robust and transparent policy frameworks — including monetary, fiscal and macroprudential policies — and enough exchange rate flexibility to promote the timely and symmetric adjustment to shocks. effective and legitimate multilateral institutions are