The extent of financial globalization and volatilities of short-term capital flows create many challenges for policies of individual economies as well as challenges to global and regional mechanisms that should provide effective safety nets for countries to maintain financial stability. To maintain economic stability, countries—particularly emerging market economies—need to make use of appropriate policy tools, including monetary and exchange rate policy, reserves accumulation, and, when needed, capital control and macro-prudential measures. In addition, liquidity support mechanisms, whether bilateral, global, or regional can make a crucial difference in times of stress. Bilateral arrangements are by nature political so may not be reliable for many countries. Global (IMF) and East Asian regional arrangements (Chiang Mai Initiative Multilateralization) still do not have effective designs that will make them attractive to countries in the region. Recommendations are put forward on how these facilities can be modified to make them more attractive and effective.

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