so maintained and increased from year to year as to cover adequately not only imports but also the short - term liabilities, especially short - term debt and portfolio investment. further, the level of reserves also takes into account the operational need to enable the reserve bank to even out the mismatches between supply and demand in forex markets and thus ensure orderly conditions in a less developed market characterised by lumpy demands. on exchange rate, the possibility of persistent misalignments due to reasons other than domestic factors cannot be ruled out and correction cannot be left entirely to the market. the developing countries do need some armoury to address such issues. it appears almost certain that capital controls would be ineffective if, in popular perception, the exchange rate does not appear to be realistic. in other words, there is considerable merit in the argument that capital controls are not substitutes for an appropriate exchange rate regime even though capital controls facilitate avoidance of excess volatility in the exchange rate that may be caused by destabilising capital flows. finally, an integrated view of the state of development of and activities in financial markets is appropriate. the activities in forex markets and its linkages with other markets, especially money - market, debt market, especially government securities market, and equity markets, have to be identified and monitored while managing capital flows. recognition of linkages, monitoring the developments, and willingness to intervene credibly in any or all of these markets as appropriate may be essential. perhaps markets should be aware of the broad objectives of such intervention. as each of the financial markets develop and get integrated with others, measures to increasingly liberalised capital account could be considered. indeed, it is possible to argue that liberalisation of capital account would aid the process of development of financial markets, but this is valid only when some informed judgements are made in respect of each country on the interactions between the management of capital account and the financial markets. in any case, capital control or regulatory framework or liberalisation would be ineffective or unstable in the absence of proper appreciation of such linkages among financial markets. above all, irrespective of the extent of liberalisation, official monitoring and surveillance of large international transactions and players would be helpful in effective and credible management of capital account. in india, during periods of surges in capital inflows or pressures on outflows, operations in the external sector were coordinated with actions by the reserve bank in the money and government securities market to ensure stability. complementary policies there are

##t do not impinge on the status of private investors. the aim of the programme is to accompany countries and their sovereign to regain stable access to capital markets. • the programme focuses mainly on the shorter end of the yield curve and in particular on sovereign bonds with a maturity between one and three years. steering short - term market rates falls squarely into the realm of monetary policy. the interventions address disorderly market conditions and are aimed at reducing excessive market volatility. • the governing council will monitor the conditions for interventions based on a large set of indicators and will assess their effectiveness to decide on the continuation of interventions. i am convinced that the new elements in sum make the omt a much better programme than the smp previously was. this new programme is a clear example of how far the ecb fulfils contemporaneously the role as a stability guardian and as crisis manager. by guarding the stability of the euro in the entire euro area and countering redenomination risks, the ecb plays a central role in managing expectations in the crisis. a question remains : what will be the role of central banks after the crisis? the role of central banks after the crisis from a central bank ’ s perspective three lessons can be drawn that appear to be crucial for its future role in crisis prevention and resolution. first, in a financially integrated market like the euro area, contagion risks are large with financial instability rapidly spreading to other market segments. second, the sudden materialisation of financial instabilities can lead to strong recessionary forces that carry downside risks for medium - term price stability. this has taught policy makers that “ cleaning ” rather than “ leaning ” against financial imbalances can simply become a very costly strategy. and third, a stable macroeconomic environment with stable prices – though being a necessary condition – is not a sufficient one for the preservation of financial stability. neither the implemented “ ex - ante ” policy measures by national authorities nor those by central banks were enough to deal with the build - up of risks and imbalances that led to the current crisis. so, what does this imply for the future role of central banks as stability guardians and their role as crisis managers? the future role of central banks : financial stability and supervision the importance of financial stability for central banks has been acknowledged in the european treaty. article 127 / 5 reads : “ the escb shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prude