prasarn trairatvorakul : towards a multi - polar currency and reserve system speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the high - level conference on the international monetary system, zurich, 10 may 2011. * * * governor hildebrand, managing director strauss - kahn, distinguished speakers, ladies and gentlemen, 1. i would like to thank the co - hosts, the swiss national bank and the international monetary fund, for inviting me to speak at this high - level conference. so far in this session, we have listened to a number of insightful presentations by well - known speakers. to avoid repeating what has been said, i will try to frame my talk from the perspective of a small emerging market economy. my focus will be on the three problematic issues facing emerging market economies and the current international monetary system, and how we may think of what needs to be done to put our international monetary system on a more sustainable path. 2. let me start with the first issue. as of now, excess global liquidity generated under the current international monetary system is complicating the conduct of macroeconomic policy in many emerging market economies. although the expansion of the global economy has strengthened in the past few quarters, economic cycles and thus monetary policy stance among various regions greatly differ. this has been widely regarded as a key push factor for international capital flows into emerging markets. the additional liquidity infused into these economies occurs at a time when it is necessary to withdraw economic stimulus and normalize or even tighten monetary policy. this is an example of the inconsistency between global liquidity and regional economic cycles. 3. the second issue is the current international monetary system which is not aligning with the changing structure of the global economy. as we all know, one outcome from the current crisis is the growing role of emerging market economies, particularly in asia. this multi - polar economic landscape is something for policymakers to consider whether there is a need to move to a multi - polar currency system. the end goal should be to retain the efficiency of the current system while enhancing its stability going forward. 4. the third issue is, despite the shortcomings of the current international monetary system, the international community has not been able to make a transition to an alternative system. in practice, it is difficult to identify a currency to compete with the us dollar as there are certain criteria to qualify as reserve currency. first, a

accountability, personalities, as well as check and balance mechanisms, or lack thereof, within the organization. more recently, the manipulation of the london interbank offered rate ( libor ) which has done serious reputational damage to the banking industry and reduced public trust was an example of misbehaviour fostered by inappropriate cultures. while events such as the financial crisis, and other scandals have continuously triggered waves of regulatory reforms, those are not enough and our work is far from over. today, there are still examples of poor corporate governance and misconduct resulting from the root - cause of inappropriate behaviour and culture within banks. recently, fraudulent practices in a large global bank were exposed where bank accounts were opened without customers ’ consent or knowledge. banks themselves need to create culture that encourages management and employees to have the right values and behaviour. this behaviour and culture cannot be detected quantitatively and similarly to the way we assess financial data, or risk - taking investment. let me demonstrate by using an iceberg to paint a clearer picture. the tip of an iceberg above the water is what we observe through banking performance, financial information, and investment portfolios. although the tip may show good performance records, the larger portion of the iceberg under water is what determines its strength or fragility. unawareness of small cracks in the iceberg could result in its unforeseeable disintegration. corporate culture and behaviour is a part of this portion under water and is an influencer of decisions within the organization. building corporate culture and behaviour that fosters good governance, soundness, and sustainability therefore has to be instilled into the organization. for asean banks, we have learnt our lesson from the asian financial crisis and bankers who had endured through that period are fully aware of the associated risks and their consequences. going forward, however, with new and younger generations of bankers, these lessons may not be as fully appreciated. newer generations may be less aware of the costs associated with excessive risk - taking behaviours and the aggressive search for higher yields may be prevalent. in this transitional period, it is therefore even more imperative that the proper culture and behaviour be embedded into every level of the organization, starting from the highest level at the board and cascading down to every level of management and staff. fourthly, financial institutions need to embrace sustainable banking to ensure sustainable success. the concept of sustainability plays an increasingly important role in our global and regional development. global warming, growing inequality of wealth and opportunity