the cycle on international interest rates will probably also be an increase in the volatility of those rates. coverage against interest rate volatility is an additional argument in favor of integrating the emerging country economies with that of the world. 4. monetary policy another by - product of the new information technology is the blurring of the traditional definitions of money. it is now clearly possibly for the non - banking private sector to create money substitutes on demand. this development will tend to render inefficient the regulation of limited definitions of money as a tool to influence economic activity and prices. if this is so, interest rates will reign unchallenged as a monetary policy tool, while inflation targeting will be in the forefront as a nominal anchor for the economy. by the way, under these conditions it will become extremely difficult to differentiate between financial and non - financial firms. until a greater synchronization of the cycle becomes evident, the need for an independent monetary policy will necessarily lead to floating exchange rates. as the cycle, or perhaps i should say if the cycle, becomes synchronized all over the world, the need for independent monetary policies may fade away. gradually, the number of currencies in the world will decrease through time. this is not economic fiction : a tendency in this direction is already present among smaller countries in latin america with large trade and investment relationships with the united states. however, a world tendency to a significant decrease in the number of currencies is probably a very long run one, where keynes ’ dictum on the long run comes to mind. in any case, i am convinced that, as rogoff argues in a recent paper, it may not be desirable to pursue currency consolidation all the way. meanwhile, in the short and medium run, the increase in productivity provides more room for monetary policy to maneuver. productivity growth alleviate inflationary pressures providing more room for monetary policy to exert its short run influence on the real economy. 5. flexibility the key word for an emerging economy in a changing world is flexibility : in exchange rates and interest rates, to accommodate shocks without concentrating their effects in one particular market ; in factor markets, both labor and capital, to minimize the cost of transition from one state of the economy to another. the task before us, in an emerging economy like chile, is to increase flexibility in all markets. we have been working on that in recent years following a careful, gradual approach, to make sure that we put in place the necessary

goal of current banking policy as has been mentioned elsewhere. apart from the pressure on the sovereign, the capital position of the banks has, as is wellknown, been placed under pressure by actual and especially prospective loan losses. naturally, long - term lenders to banks need assurance as to the adequacy of the banks ’ capital position and this means not only that the banks ’ capital has had to be increased – and this has been done on a very large scale over the past two years – but that investors need more and better information about the portfolio of the banks. the lengthy process of determining the nama - related loan losses and the time taken in some cases to meet the central bank ’ s capital target set out in the prudential capital adequacy review pcar announcement of march 30, 2010, and revised at the end of september, has tended to muddy communication around the capital adequacy of the irish banks. there is market concern about tail risk in the banks [UNK] portfolios. this, together with the heightened market uncertainty prevailing since the end of april, certainly argues for higher percentage capital targets. and, while the external experts have found no fault with the methodology used for this year ’ s pcar stress test, the next exercise, which takes place early in 2011, will both dig deeper where possible, and take account of evolving economic and loan performance developments and prospects over the year. as already indicated in the past couple of days, it is clear that addressing both the capital ratios and the pcar exercise will be key elements of the programme being negotiated at present with the eu commission and the imf in liaison with the ecb. capital is an indispensable multi - purpose buffer against unexpected risks, though it is costly, especially for dealing with tail risks. there is another dimension along which tail risk can be lowered, thereby further increasing confidence of investors on a less costly basis. this falls into your area as accountants, because i am talking about accounting and other information disclosed to the market. i have already railed elsewhere against the backward - looking loan - loss provisioning practices encouraged by international financial reporting standards ( ifrs ) and still all too pervasive in the reporting by most of the irish banks. i find it unsatisfactory that expected losses in many parts of the portfolio are clearly higher than the provisions already taken, because i fear that this evident and in some cases explicit discrepancy may awaken doubts in the