public sector by countries that participate, or aspire to participate, in international capital markets. the focus of this work was the authorities foreign currency liquidity position, which consists of foreign exchange resources that can be easily mobilised, adjusted for potential drains on those resources. while greater disclosure is not a panacea for international financial crises, adherence to the standards developed in the wake of the 1997 crisis would go a long way toward preventing future stresses and facilitating responses to those that do occur. some have argued that an equally important issue is a disclosure standard for private participants in international capital markets, especially highly leveraged entities. such disclosure could be useful, and work on this topic is proceeding. but progress on official disclosure should not be delayed pending the outcome of these efforts. the asian financial crises have reinforced the basic lesson that emerging market economies should pay particular attention to how they manage their foreign exchange reserves. but managing reserves alone is not enough. in particular, reserves should be managed along with liabilities - - and other assets - to minimise the vulnerability of emerging market economies to a variety of shocks. in this context some simple principles can be outlined that are likely to be useful guidelines for policymakers. it may also be useful to consider somewhat more nuanced approaches to this problem. considerable progress has been made in recent years in developing sophisticated financial instruments. these developments create added complexity that all financial market participants, including policymakers from emerging market economies, must manage. however, they also create opportunities that emerging market economies should seek to exploit. in doing so there are lessons they can learn from advances in risk management strategies developed by major financial institutions. in his remarks at the recent g - 33 seminar in bonn, pablo guidotti, the deputy finance minister of argentina, proposed a simple guideline for policymakers in emerging market economies that a number of my colleagues at the federal reserve believe is worth considering. guidotti suggested that countries should manage their external assets and liabilities in such a way that they are always able to live without new foreign borrowing for up to one year. that is, usable foreign exchange reserves should exceed scheduled amortisation ’ s of foreign currency debts ( assuming no rollovers ) during the following year. this rule could be readily augmented to meet the additional test that the average maturity of a country s external liabilities should exceed a certain threshold, such as three years. the constraint on the average maturity ensures a degree of private sector “ burden sharing ” in times of crisis, since in the

mr greenspan discusses recent trends in the management of foreign exchange reserves speech by the chairman of the board of governors of the federal reserve system, alan greenspan, at the world bank ’ s conference on recent trends in reserves management, washington, d. c., on 29 april 1999. one way to address the issue of the management of foreign exchange reserves is to start with an economic system in which no reserves are required. there are two. the first is the obvious case of a single world currency. the second is a more useful starting point : a fully functioning fully adhered to, floating rate world. all requirements for foreign exchange in this idealised, i should say, hypothetical ; system could be met in real time in the marketplace at whatever exchange rate prevails. no foreign exchange reserves would be needed. if markets are functioning effectively, exchange rates are merely another prices to which decision makers - - both public and private - - need respond. risk - adjusted competitive rates of return on capital in all currencies would converge, and an optimised distribution of goods and services enhancing all nations standard of living would evolve. public and private market participants would require only liquid reserves denominated in domestic currency. and in the case of a central bank of a fiat currency regime, such reserves can be created without limit. but, clearly, the real world is not perceived to work that way. even if it did, it is apparent from our post world war i history, that national governments are disinclined to grant currency markets unlimited rein. the distributions of income that arise in unregulated markets have been presumed unacceptable by most modern societies, and they have endeavoured, through fiscal policies and regulation, to alter the outcomes. in such environments it has been the rare government that has chosen to leave its international trade and finance to what it deems the whims of the marketplace. such attitudes very often are associated with a mercantilist view of trade that perceives trade surplus as somehow good, deficits bad. since in the short run, if not in the long run, trade balances are affected by exchange rates, rates that are allowed to float freely are few and far between. in a crisis, of course, monetary authorities are often overwhelmed, and lose any control of the foreign exchange value of their domestic currency. most nations, for good or ill, have not been indifferent to the foreign exchange value of their currency. i say most, but not all