The G20 Summit will be held in Toronto, Canada, next week. One of the most interesting topics to be discussed at the summit is the establishment of global financial safety net issues to respond to challenges in the recent financial crisis. Integration of the world economy has brought substantial benefits in terms of growth and prosperity.

However, it has also meant that individual countries may at times be vulnerable to serious external shocks, transmitted through both economic and financial channels. Such shocks may quickly result in a country facing a foreign exchange liquidity crisis, with potential serious consequences for domestic economic stability.

Our experience in this region in particular shows that disruptions and instability in the financial sector can cause a severe loss of confidence. However, the situation in developing countries is often worse because they have only limited options to respond in a timely and effective manner. Developing countries often have limited foreign reserves to buffer any sudden capital reversals.