basis of this, benchmarks and best practices have been described by various bodies. the financial stability forum has assembled “ 12 key standards for sound financial systems ”, and the g - 20, an informal amalgamation of the g - 7 countries and large emerging market economies, has conducted extensive research on institution building in the financial sector and drawn useful conclusions. at the risk of oversimplification, the advice given boils down to sound institutions and sound policies as the main tools for preserving stability. macroeconomic policy must be geared towards stability - price stability and sustainable public finances - and be consistent with the chosen exchange - rate system. microeconomic policy needs to furnish the economy with a high degree of flexibility. financial regulation and supervision are to safeguard the strength of national financial systems. the degree of sophistication in financial regulation and supervision determines the prudent degree of capital account openness. the sequencing of capital account liberalisation needs to start with the more stable long - term capital flows, such as fdi. volatile short - term capital flows are to be deregulated last. a reliable legal system raises confidence while a high degree of transparency allows rational decision - making by international investors. as to international investors, sophisticated risk management is of the essence. the implementation of the aforementioned institutions, standards and policies falls predominantly into the realm of national governments. they are subject to multilateral surveillance, primarily by the international monetary fund ( imf ) by means of article iv consultations. multilateral surveillance has been devised to identify potential weaknesses early on. the bundesbank appreciates that the imf recently strengthened its surveillance activity in terms of quality by expanding vulnerability assessments and by focusing more distinctly on conclusions and recommendations in reports on the observance of standards and codes and in financial sector stability assessments. in terms of transparency, the publication of staff reports of article iv consultations, which is now almost standard procedure, is to be welcomed. in terms of scope, an improvement has been achieved by covering developments in international capital markets more extensively. history suggests that, despite all these efforts in crisis prevention, the international financial system will experience rough patches from time to time. a pre - agreed framework for the orderly resolution of financial crises is therefore required. providing ex - ante clarity on the procedure of debt restructuring is not the least important part of the crisis prevention exercise. the bundesbank has long been favouring the involvement of the private sector in crisis resolution. arrangements where the private sector reaps

necessarily have to intervene in their anchor currency. it is again portfolio theory applied to international bond portfolios that suggests that a country with a pegged or tightly managed exchange rate would overweight assets denominated in the anchor currency because they have a low variance in local currency terms and thus carry little risk. in addition, a high dollar share countries might be motivated by the fact that the dollar appears to be a good hedge against sudden stops in capital inflows – in particular at the global level. this empirical finding has been documented again during the intensification of the global financial crisis during which capital flows to emerging markets dried up while the us dollar appreciated. do these considerations mean that no changes to the current international monetary system are ever possible? as we know, history tells us that changes to the reserve currency status of currencies did occur. and we have at the country level recent examples of countries which hold today more diversified reserve portfolios than in the past. in russia, the share of the euro has grown in 2008 for the first time above that of the us dollar and currently stands at 47. 5 %. what is important to note here is that the gradual diversification of russia ’ s foreign exchange reserves had been preceded by a rising share of the euro in the bank of russia operational currency basket which is used as a point of reference in its exchange rate policy. this process has been gradual and started already in 2005. more generally, since decisions on a country ’ s anchor currency are typically determined by structural factors which change only slowly over time – for example the direction of trade flows or invoicing practices – changes to the currency composition of reserves are also more likely to occur in a gradual way. in fact, the recent financial and economic turbulences which were also accompanied by some exchange rate volatility have resulted in only in very limited changes to the currency composition of global foreign exchange reserves. thank you very much for your attention. see campbell, j. y., serfaty - de medeiros, k., and viceira, l. m., 2007. “ global currency hedging ”, nber working paper, 13088 may 2007. see beck, r. and rahbari, e. ( 2008 ). “ optimal reserve composition in the presence of sudden stops : the euro and the dollar as safe haven currencies ”, european central bank, working paper no. 916.