and information technology have provided new methods and instruments for risk management. as a result of all this, today the financial system is more extensive and globalised than ever before. this holds even though capital flows relative to gdp were also large at the turn of the nineteenth century. at the time, however, it was other countries that received the flows, which also took a somewhat different form. the rapid pace of financial developments and internationalisation is really a logical consequence of the globalised production of goods and services, with the strong growth of cross - border trade in the world economy. these developments have accentuated the need of new financial solutions for firms and households. expanding foreign trade and globalisation of the production of goods and services call for the development and internationalisation of the financial system so that the opportunities of greater prosperity can be fully utilised. a well - developed financial system is particularly important, moreover, when advances in tele - and data - communications are beginning to have more far - reaching consequences for production processes. at the same time, the transition to a more global financial system has not been straightforward. developments have often been so rapid that systems have been “ left behind ”. but this does not mean that the problems lie in the deregulated financial system or in capital mobility as such. turning back the clock would be difficult but the notion is worth a thought to indicate the consequences that a return to a highly regulated financial sector would have in terms of growth and employment. here i have tried instead to show how the system itself, as well as the authorities around the world, are endeavouring in various ways to contribute to greater financial stability at the same time as the positive characteristics of the new financial system are allowed to contribute to the growth of prosperity in the world.

mr backstrom reviews international financial turbulence in the 1990s speech given by mr urban backstrom, governor of the sveriges riksbank and chairman of the board of directors and president of the bank for international settlements, at the jonkoping university contact, jonkoping on 18 november 1999. * * * first i want to express my thanks for the invitation to visit the university here in jonkoping and talk about the turbulence we have experienced over the past decade in both the international economy and in sweden. what makes this topic particularly interesting is that from time to time the financial unrest, in sweden as well as elsewhere, has shaped the economic situation in many countries and sometimes also in the world in general. early in the 1990s the nordic countries were beset by severe problems in the financial system. these difficulties were exacerbated by the turbulent situation at that time in europe ’ s erm system. japan has had to grapple with a crisis for most of the decade. mexico encountered problems in the mid - 1990s, as did countries in southeast asia just a few years ago. last autumn, global financial market unrest arose again when russia chose to suspend payments on a part of government debt. when this was compounded by problems with an american hedge fund, long term capital management, the situation in western financial markets became critical, fortunately only for a time. this year, it is brazil that has experienced financial difficulties. in addition to the extensive financial worries of this type, there have been relatively abrupt shifts in interest rates, exchange rates and share prices. in some instances the financial turbulence has stemmed from inconsistent economic policies, as well as from notable shortcomings in the supervision of banks and other institutions. it has not infrequently coincided with and even been the direct cause of far - reaching macroeconomic adjustments in the economies concerned. in sweden, for instance, gdp fell for three consecutive years, from 1991 to 1993, by a total of 6 % and unemployment shot up. other countries have experienced similar and even greater setbacks. large loans have been provided by the international monetary fund to assist various countries. in the light of all this, it is hardly remarkable that in recent years matters to do with the global financial system and how it works have been discussed more intensively throughout the world. so my subject today is indeed topical. but let me say at once that i will be considering just a couple of the aspects the title of my talk encompasses. time is obviously a consideration here