implications. first, however, since there is some confusion on this point, it is helpful to clarify the difference between flexibility and convertibility. convertibility means the ability of a currency to be freely exchanged into foreign currencies, either for trade ( current account convertibility ) or for investment ( capital account convertibility ). the renminbi enjoys current account convertibility but is not freely convertible for capital account transactions. flexibility means the degree to which the exchange rate is allowed to fluctuate before there is intervention by the central bank. at present, there is flexibility in the exchange rate of the renminbi, in that the exchange rate is determined by “ market ” supply and demand, although the central bank remains the ultimate banker in the market. the renminbi has indeed been trading within a very narrow band in the past few years. the narrowness i think reflects china having acted responsibly, against the background of financial turmoil in asia, in not allowing greater flexibility in the renminbi exchange rate to add destabilising volatility to asian currencies. however, a number of observers, including the imf, now believe that there is scope for more flexibility. but, while most observers regard full convertibility as a desirable long - term goal, few believe that any significant moves will be made in that direction in the near term. this means that, even if the renminbi were to be given more flexibility, it would probably still be subject to the existing exchange rate controls. the immediate consideration for policymakers on the mainland and markets is whether, with greater flexibility, the renminbi would go up or down. china ’ s persistent current account surpluses suggest that it should appreciate. but the market does not seem to feel this way. the non - deliverable forward exchange rate for the purchase of us dollars is continuously at a significant premium. the difference in views may have two explanations. one is the large amount of negative errors and omissions in the balance of payments, which many presume to indicate unidentified capital outflows. the second is the concern that many have that wto accession will precipitate, at least initially, a surge in imports that is greater than the surge in exports. why, then, should flexibility be a matter for consideration? there could be a number of advantages from the perspective of the mainland. for example, allowing more interaction of supply and demand of foreign exchange for current account transactions may serve as

particular activities some in the sector undertake. the biggest risks arise from combining high levels of leverage with holdings of illiquid assets and commitments to provide liquidity at short notice. in the current environment, those types of activities need careful monitoring, and possibly a deliberate policy response. conclusion there is no doubt that the reforms made thus far, along with a stronger framework for global co - operation mean we are in a better position to face new risks. but as we move to the next phase of post - crisis regulation, many commentators find it tempting to succumb to world - weary arguments. that any reform will be arbitraged that any insurance will promote risk taking that there is a trade - off between stability and growth bis central bankers ’ speeches and that there will always be financial crises. we were right to reject such fatalism when we embarked on reform and we are right to reject it now. while all recognise that future crises cannot be ruled out, the steps taken in the past six years have certainly reduced the likely frequency and severity of such crises. where banking systems have raised capital and restored trust in their creditworthiness, access to credit has returned. this central lesson from the us and the uk recoveries could not be clearer. publicly provided insurance is being removed from the system as the too big to fail problem is addressed and the public subsidy for globally systemic banks is eliminated. market forces are being restored. the system is more transparent. it is clear who bears risk. and the scope for arbitraging new regulation has been reduced through a global approach to reform that has established common standards and encompassed shadow banking. in short, any serious look at the experience of post - crisis reform shows that reform and regulation support – not damage – long - term prosperity. as i said in washington three years ago : in no other aspect of human endeavour do men and women not strive to learn and improve. the crisis showed that there was ample scope to improve the efficiency and resilience of the global financial system. through clarity of purpose and resolute implementation brisbane will mark an important milestone in our efforts. that we have reached this point is a triumph of the optimists. but we must not stop work. there is still much scope to improve. the process of reform is not over. we will continue to learn and adjust. and we must continue to manage the system effectively in the face of new risks. with that we can deliver the open and resilient financial system that can