4½ % below its peak three years ago. despite depressed levels of activity, inflation has been well above our 2 % target. this morning ’ s confirmation that cpi inflation rose to 5. 2 % in september was in line with the expectations of the mpc at the time of our august inflation report. that is likely to be at, or close to, the peak, and we expect inflation now to start to fall back, as it did in the months following the peak in inflation in september 2008. nevertheless, it will seem odd to many that at a time of high and rising inflation, the mpc has eased policy further. so let me explain why the committee considered it necessary two weeks ago to resume its programme of asset purchases. in contrast to headline inflation, domestically generated inflation remains subdued – and on some measures barely above zero. increases in energy prices, import prices and vat account for the current high level of inflation. once the effect of these temporary factors begins to dissipate, inflation should fall back sharply early next year. a persistent margin of spare capacity in the economy, and the recent deterioration in demand prospects linked to the crisis in financial markets, will add to the downward pressure on inflation in the medium term. so it is the outlook for inflation, rather than its current rate, which explains the mpc ’ s decision to resume asset purchases. asset purchases work by increasing the amount of money in the economy. when the bank buys assets, the people who sell the assets to us receive money which can then be used to buy other assets. in turn, the sellers become buyers of other assets, and so on indefinitely as the money is transferred from one account to another. the prices of assets that investors choose to buy go up, raising wealth and pushing down on yields. those yields are the opposite side of the coin to the borrowing costs of companies. in these ways, the bank ’ s purchases of assets increase demand in the economy. some of you have asked why the mpc has focused largely on purchases of gilts, rather than securities issued by companies. the answer is three - fold. first, gilts are the only asset available in sufficient quantity such that the bank can rapidly inject large amounts of money into the economy – £75 billion in the present case. second, we have bought, and continue to buy, corporate securities, but this was designed to ensure that the corporate bond market functioned normally with the bank acting as a temporary market - maker in a dysfunction

latin america, east asia, russia and most recently in europe. as a result, a variety of means to insure against sharp changes in capital flows have developed at domestic, regional and international levels which are collectively referred to as the “ global financial safety net ”. 3 the cross border impact of the global financial crisis has forced a fundamental rethink about whether this global financial safety net is functioning as efficiently as it should, and whether more needs to be done to contain the systemic spillovers from sovereign crises. a key means by which the bank of england pursues its mission of monetary and financial stability is through the provision of liquidity insurance to the financial system – something it has been doing in one form or another since david hume ’ s time. in some ways, this makes the bank of england the domestic safety net for the liquidity needs of solvent financial institutions. as hume himself put it : “ private bankers are enabled to give … credit by the credit the receive see pagan ( 1865 ). see hume ( 1758 ). these crises have also spawned a rethinking of capital flow management tools – akin to macro prudential policy for global flows – a topic which shows promise but one that i will not cover in this speech. bis central bankers ’ speeches from the depositing of money in their shops ; and the bank of england in the same manner, from the liberty it has to issue its notes in all payments 4. ” today, given my current role overseeing the bank of england ’ s market functions, as well as my previous experience at the imf dealing with the crisis in the eurozone and in the wake of the arab spring, i would like to offer some thoughts on how lessons from reform to the domestic financial safety net for banks could be applied to sovereigns, to the imf as international lender of last resort and to the global financial safety net more broadly. i will argue that we need a stronger and more resilient global financial safety net to reduce the systemic implications of sovereign crises and allow nations to cope with shocks in order to reap the economic rewards of an integrated system of trade and finance. i will also argue that the effectiveness of that safety net would be enhanced by implementing policies that strengthen surveillance and the stress testing of countries balance sheets, and better mechanisms for resolving sovereign debt crises when they occur. these are of course my personal thoughts rather than an official uk position, but i offer them in the spirit of encouraging debate. 2. the domestic financial