(1993): “Discretion versus policy rules in practice,” Carnegie Rochester Conference Series on Public Policy 39, and Henderson, D. and W. McKibbin (1993): “A comparison of some basic monetary policy regimes for open economies: Implications of different degrees of instrument adjustment and wage persistence,” Carnegie-Rochester Conference Series on Public Policy, 39. BIS central bankers’ speeches  1  framework with both forward-looking agents and monetary policy specified in terms of the key interest rate. Under this framework, monetary policy becomes more powerful if the agents understand the reaction pattern of the central bank. When a disturbance hits the economy, the policy response required to stabilise the economy is smaller if the central bank can affect the whole term structure than if monetary policy only works through the short-term interest rate. 3 However, the importance of forward guidance depends on the degree to which expectations are forward-looking. In principle, economic agents may be able to calculate how the central bank will respond to changing conditions if they know both the model of the economy and the objectives and reaction pattern of the central bank. Expected future interest rates may then align well with the central bank’s own interest rate intentions, and there will be no need for the central bank to communicate its policy intentions. In practice, a model description of the economy is just that – a model, which always will be a simplification. The central bank’s reaction pattern may also be adjusted over time.

These impediments can take the form of legal and regulatory inefficiencies, structural and performance weaknesses of the markets, the outmoded standards and infrastructure used, or the lack of attention by the central banks and regulatory authorities. While it is important for the national central banks to address these issues and find remedial action early, given the increase in trade, investment and crossborder financial flows, it is essential for the region to have a common understanding and apply, where possible, common standards. 7.3 The design of every payment system requires a series of trade-offs between the different elements of its objectives. The precise outcome of these trade-offs will vary, because they will be closely based both on national realities and international best practice. This emphasizes the need for close and continuous consultation in each country between the suppliers of payment services and the central banks as the overseer and regulator of the systems. The ultimate target of these consultations is to ensure the easy availability in each country of a payment system that meets the needs of its users, that enables the suppliers to cover their costs, and that does not absorb an excessive proportion of the national resources. That is why many regional payment system development initiatives have sprung up over the last few decades. For example, South African Development Community (SADC Payments Initiative – 1996), the Western Hemisphere Payments Initiative (1999); the Commonwealth Independent States Payments Initiative (2004); and the Arab Payments Initiative (2005) are some of the well functioning regional payment Initiatives.