smaller budgets need, therefore, to be more nimble and flexible, and to improve efficiency in their operations. new approaches to traditional tasks are now needed. the bank is committed to playing its part in helping the new economy to become a reality by supporting those who will power it. the financial sector is changing rapidly, and we have to adapt. already, the bank is working with government and the private sector to modernise the framework for payments. and, we are automating more of our internal processes and systems to improve our service to you. the new economy is not something that will just happen. it is something that we have to make happen. let us use this week of excellence to jumpstart our thinking and our actions in this area. let us use the opportunity provided by these difficult economic times to finally resolve some of the issues with which we have struggled in the past. i want to wish you a good week of discussions and i look forward to the outcomes. i thank you. 2 / 2 bis central bankers'speeches

recent period, governor zhu, from the people bank of china has raised the issue of reserve currencies. according to governor zhu, current arrangements for liquidity provision are a source of instability and have played a role in causing the crisis. governor zhu has mentioned, in particular, the intrinsic contradiction embodied in the famous “ triffin dilemma ”. because the dollar is the major reserve currency, international liquidity supply depends on the us running a sufficiently large current account deficit which, by itself, aggravates global imbalances and creates instability. governor zhu suggested that the role and status of the sdr be enhanced, with the long term objective of creating a “ super reserve ” currency. however, the triffin dilemma goes back to a period when international capital markets were poorly developed. by then, international liquidity was limited to instruments used to settle payments between official monetary authorities. it was represented by claims on such official entities. by contrast, in today ’ s world, most international liquidity is privately provided and represented by claims on private institutions. interbank markets play a crucial role in this process. the more capital markets become integrated at the short end, the more international liquidity is provided by the private sector. as a consequence, there is a strong continuity and complementarities between domestic and international liquidity. both depend on the willingness of counterparties to extend credit to each other. both are subject to aggregate supply and demand shocks with sudden shifts in risk aversion or liquidity preference. both result from leveraging and deleveraging by private institutions ( adrian and shin, 2008 ). when markets seize, counterparty risk is perceived as excessive, uncertainty settles in, financial institutions deleverage their positions towards non residents, and then international liquidity dries up and disappears. when a shock occurs, public provision of liquidity has to substitute to private provision. in a domestic context, this is the function of the lender of last resort. but when the shortage is about foreign currency liquidity, this role has to be played by foreign exchange reserves. foreign exchange reserves in the last decade, emerging countries have constantly sought to expand their foreign exchange reserves. the emerging markets ’ average reserve ratio has more than quintupled from 4 percent to over 20 percent of gdp since 1990 ( obstfeld et al. 2009, matteo y lagos et al., 2009 ). one cannot assume, however, that equilibrium has been reached and that the demand for reserves will stabilize.