for alternatives. the third and final issue i will address today is how to deal with capital flows. of course, the potential for destabilizing capital flows was well understood even before the crisis. in fact, after the various financial crises of the 1990 ’ s, emerging markets began to accumulate international reserves in order to build a buffer of foreign exchange liquidity. the combination of floating exchange rates and robust foreign reserves, it was hoped, would be sufficient to protect economies and financial systems from destabilizing capital flows. the resort to unconventional monetary policies in the wake of the global financial crisis resulted in an unprecedented level of global liquidity. emerging markets were buffeted by unusually intense and volatile capital flows. exchange rate appreciation and fx market intervention were insufficient to maintain financial stability. the policy response in many emerging markets included macroprudential policies to bis central bankers ’ speeches dampen the effects of capital inflows on domestic credit and capital markets. these policies included both measures that aimed at domestic markets and measures that directly targeted capital inflows. there is currently widespread agreement that a multipronged approach, including macroeconomic, structural, and macroprudential policies may be necessary in order to deal with capital flow surges. more recently, academia, central bank researchers and the imf have endorsed a judicious combination of capital flow management measures with strong macroeconomic policies, including using exchange rate flexibility as the first shock absorber. however, these measures have costs, including market distortions, administrative burden, and negative market reactions. furthermore, there are still a number of open questions. what combination of policy instruments should recipient countries use in order to minimize costs? to what extent should the burden of adjustment also be on source countries? is it possible to improve on the decentralized outcome through international policy cooperation? i am still unconvinced that there is room for much greater international policy coordination – central banks have domestic, not global mandates. however, it seems to me that there is some scope for cooperation at least in identifying potential cross - border and financial stability risks and adopting, when necessary, targeted macroprudential policies – either in recipient or in source countries – in order to prevent capital flows from fueling unsustainable financial bubbles. * * * i ’ ve raised a number of open issues in central banking that i believe will shape central banking for some time to come : • financial stability is once again a core function of central banks, but macroprude

##ntial policies and frameworks are still in their infancy, and a proper role of monetary policy in ensuring financial stability is still under discussion. • inflation targeting remains the dominant monetary policy regime, but if growth skeptics are correct and the zero - lower - bound recurs, there will be renewed calls for moving to innovative regimes or at least higher inflation targets in mature economies. • a laissez - faire approach to capital flows is off the table. there is still disagreement, however, on how to deal with flows, on who bears the burden of adjustment, and on the scope for global policy cooperation. however, there is perhaps a deeper lesson to be drawn from the global financial crisis. the crisis came largely as a surprise ; not because we did not see the bubbles forming, but rather because the central banking community as a whole failed to fully take into account the vulnerabilities resulting from the growth of the shadow banking sector, the opacity of the novel financial instruments that helped fuel the bubble, and the complex domestic and international linkages between different financial sector intermediaries. a fundamental lesson to be drawn from the global financial crisis is the need to develop an integrated, forward - looking approach to central banking that brings together : • comprehensive, granular ( and perhaps “ real time ” ) financial sector surveillance that focuses on identifying systemic risk and develops adequate market infrastructure and reporting systems ; • market intelligence that captures short, medium and long - term trends in the financial system, including, for example, the potential impacts of the rapid evolution of electronic trading platforms and algorithmic investment strategies ; and bis central bankers ’ speeches • research and analysis that spans monetary, exchange rate, and macroprudential policies. we have made some progress in this direction here at the central bank of brazil, but we expect to continue to develop this integrated approach to central banking for some years to come. hosting discussions like this one we are having today is part of this process, so i ’ m looking forward to hear from our panelists, which do not require any introduction. but nevertheless let me say a few words to introduce them to you. our first panelist is jacob frenkel. dr. frenkel taught international economics at the university of chicago before serving as governor of the bank of israel between 1991 and 2000. he then moved to the private sector, where he is currently the chairman of jpmorgan chase international and he also serves as chairman of the board of trustees for the group