short - term foreign currency debt of the central government, and on levels of international reserves, including financial derivative positions. for transparency standards to be most effective, they require as broad a participation by authorities as possible. further, they must balance the need for comprehensive and timely disclosure with the need for accurate data. improvements in financial data from the private sector, which i have discussed, are crucial, but public sector disclosure must not await improvements in private sector disclosure. the imf can contribute to public sector transparency with respect to critical economic variables through implementation of the special data dissemination standards, or sdds. voluntary compliance with sdds by all countries will provide some assurance that economic transactions are not being based on misleading or incomplete information. the need for capital mobility a third lesson suggested by the historical analysis is that the ability to attract foreign exchange is a critical element of a stable global financial system. in the modern context, i believe that this finding has two corollaries. first, we must avoid blocking capital flows, particularly of long - term funds. there have been policymakers who have advocated capital controls. i do not need to give a group of business economists a lesson in basic economics, but there are those outside of this room who need to be reminded of the benefits of free capital flows. even though current international financial troubles indicate that there are risks from the free flow of capital, the benefits are substantial and contribute importantly to rising standards of living. as you know, an individual country ’ s pool of savings does not always equal its pool of investment opportunities. if borders were closed to the flow of capital, interest rates would adjust to equilibrate domestic saving and investment, but some investment opportunities, which might be attractive by international standards, might go unfunded while less attractive domestic opportunities would be funded. with the free flow of capital, countries that have a greater pool of highly productive investment opportunities will benefit from the inflow of capital and those that export capital can put their savings to better, more rewarding use. this presumes the institutional underpinnings outlined above. protectionist impulses for measures that impede the flow of goods, services and managerial knowhow must also be avoided. while participation in such free exchange across borders creates industries and individuals that are made better off and some that do not fare so well, we know that, on balance, all societies are better off from allowing the free flows of international competition. given the fact that there are scarce resources globally, it is

forecasts and judgement enlightened by the collegial wisdom and experience of a council. we have also two significant differences that should also be stressed and explain why, despite our strong similarities, observers are very often underlining that we are illustrating different concepts of monetary policy. first, we made public our precise quantitative definition of price stability whereas the fed does not. the fed probably has good reasons not to do it. perhaps it implicitly refers to what the public opinion at large would regard as price stability in the us. i do not judge. let me only point out the advantages of the ecb position. it is good for transparency : everybody knows precisely what we are aiming at. it is good for accountability : the public opinion can judge whether or how we are achieving our own goals in comparison with the yardstick we made public. it is good for medium and long - term credibility : inflationary expectations can be more easily anchored. let me also recall that the success of the transition to the euro five years ago demanded as much clarity as possible as regards our definition of price stability in comparison with previous national definitions of price stability. we had promised that the new currency would be at least as good as the previous national currencies. this promise meant that the new currency would be at least as credible as the most credible of the previous national currencies. it also meant that the market interest rates associated with the new currency would be as low as the interest rates associated with the most credible currencies and the definition of price stability would not be looser. had this not been the case, then markets would have demanded a risk premium to take into account the looser definition of price stability. and the transition could not have been organised in such a way as for the euro to reap the full legacy of the lowest yield curve available. so it is not only for strong theoretical reasons but also due to practical considerations of an extremely important nature that the ecb has chosen to give a quantitative definition of price stability. second difference with the us. as i tried to explain previously, we have assessed that it was useful to incorporate visibly in our monetary policy concept a monetary analysis complementing the economic analysis and permitting a cross - check of the latter from a medium to long - term perspective. we have seen three advantages in setting up our twofold approach. firstly, to reflect that inflation, as a last resort, and in a medium to long - term basis, is a monetary phenomenon ; this