35. The liberalization of short-term capital flows has proceeded far beyond lheextent thought advisable at Bretton Woods, and revolulionary developments inelectronics and telecommun ica ti.ons have made lt possible Eo move funds around thelrorld j.n seconds in response to anticipated changes in interest rates or exchanqerates. Such capital movements have come to dominate demand and supply in foreign exchange markets. The exchange rates of key currencies can shor^r persistent misalignments unrelated to underlying fundanental economic conditions. Shifts ofattitudes and expectations in the foreign exchange market, where herd-Ilke patternsof behaviour and bandtragon effects have been weII documented. can lead to sudden and destablLizing swi tches . 36. Capital movements trave become so large that they make lt difficult or impossible to control the expansion or contraction of international liquidity. A crude indication of this is a comparison betl'een the maximum dailv speculation of unaler $IOO million against. Ehe pound sterling in the massive run of auqus! 194? andthe maximum daily specul"ation of over 91.5 billion into the Federal Republic of cermany in May 1969. At present, the value of transactions in exchange marketacarried on in a single day is estimated, very roughly, at between $50 billion and $150 bilLion. These transactions result from a complex web of trade and tEymentsas qell as portfollo adjustments and other financiar operations. rn annual terms,the value of international currency transactions recorded is in the order of $20 trtllion to $40 trillion r,rhile the value of world trade is about g2 trlllion. These figures rai3e Ehe issue of what the Bank of International Settlements in its 1985 report terms rrthe inplications for the conduct of monetary policy andprudential supervision, of internationally integrated, innovatlve and progressively deregulated financial markets'r. 37- rn markets of thi6 magnitude, no centrar bank can by itserf intervene withlasting effect, especially not one seeking to appreciate its currency by selllngforeign exchange. Effective intervention requires resources on a scale that rulesoue the possibility that lntervention might be abandoned becauEe of lack of funds.
**Analysis**
The text discusses the rapid evolution of international financial markets, the impact of technological advancements on capital flows, and the challenges faced by central banks in managing exchange rates. It highlights the massive scale of international currency transactions and the implications for monetary policy and prudential supervision. The text does not address any specific economic development, natural resources, health, education, employment, humanitarian aid, or cultural issues, but rather focuses on the international financial system.

**Category**
International trade, Industry