parcel of our longer - term plan to facilitate thai companies to diversify their investments abroad, especially in neighboring countries. this would encourage private companies to operate their businesses more efficiently by expanding their markets and production bases. in turn, such diversification will help strengthen their competitiveness and absorptive capacity. at the other end of the spectrum, limiting leverage in the banking system would add more cushions to the economy against external shocks. last but not least, developing fundamental economic strengths to enhance countries ’ resiliency to external shocks can work through well - diversified export items focusing on high value - added products. this would lead to more bargaining power, and hence less bis central bankers ’ speeches sensitive to exchange rate fluctuations. stronger domestic consumer base would also help lessen the dependence on external demand. all reforms i mentioned require concerted efforts from all public and private stakeholders. policymakers should provide economic environment and infrastructure conducive to reforms. particularly, financial literacy and risk management awareness should be fostered at all levels and sectors. financial institutions also play a crucial role in developing financial products to facilitate transactions and risk managements. businesses should upgrade productivity to enhance industry ’ s resilience to shocks. advanced preparations will surely pay off. lessons learned, challenges ahead, and policy implications ladies and gentlemen, as we are approaching the end of my talk, let me now share some final thoughts on lessons learned and challenges ahead. first, for countries that want to maintain autonomy on interest rate policy, exchange rate flexibility is a pre - requisite to living with capital flows. nevertheless, extreme exchange rate fluctuations may cause misalignments. a trade - off between flexibility and stability thus requires policymakers to identify the exchange rate framework suitable for the economy. this can be a daunting task in practice, as the target is often country - specific and subject to dynamic economic developments. keep in mind that monetary policy can do little to influence real exchange rates in the long term. attempts to give the exchange rate more weight in monetary policy deliberations will also reduce the autonomy in controlling interest rate, leading to more interest rate volatility. in any case, policymakers need to be more practical and innovative in detecting and assessing impacts of the exchange rate on real economy. an ability to monitor adjustments at the micro or firm levels is also a helpful guide on when and how to manage currency risk. second, amidst an increasing global interconnectedness, policymakers should also be mindful of policy externalities on other

central bank ’ s transparency and public understandings. from a longer - term perspective, currency should be able to move flexibly in line with economic fundamentals. active foreign exchange interventions can cause potential distortions. first, financial market development would be hindered. a certain level of exchange rate volatility is often a pre - condition for market development. without sufficient volatility, there would be no incentive for firms to hedge themselves against currency risks and for financial institutions to start offering currency hedging tools. it should also be noted that heavily managed exchange rate may discourage businesses from upgrading their technology, productivity, and competitiveness, so as to command more bargaining power in the global market and better withstand exchange rate volatility. given limitations and side effects of short - term exchange rate management strategies, exchange rate interventions should only be employed to deal with excessive movements or special circumstances when the market needs anchoring. interventions should also be two - way, not aiming to resist trend movements but to cushion the impact of extreme movements. for normal times, the exchange rate should move flexibly to serve its role as shock absorber for the economy. ladies and gentlemen, now, policymakers have to strike the right balance between implementing short - term measures and building long - term capacity for the economy to better withstand external shocks. to promote economic resilience in the long run, it is important to press ahead with reforms that deepen local capital markets. deeper and more liquid markets help absorb higher capital flow volatility and large shocks, preventing large swings in price movements. in addition, active and widespread use of foreign currency hedging instruments is also beneficial to mitigate the negative knock - on effects from exchange rate volatility. liberalization of outward investment by domestic investors also helps promote more balanced capital inflows and alleviate upward pressure on the exchange rate. these international asset holdings can provide a buffer when domestic market faces rigorous tests of volatility. nevertheless, liberalization needs to be well planned, timed, and sequenced in order to ensure that its benefits outweigh costs. the appropriate degree of liberalization for a country at a given time depends on its specific circumstances, notably its financial and institutional development. more stable and long - term flows, particularly direct investment flows, should be liberalized prior to short - term portfolio flows, which are more volatile and sensitive to cyclical factors. in october 2012, the bot launched the capital account liberalization master plan. this was part and