Maintaining an exchange rate peg over such a long time span is hard, though changes to the composition of the currency basket allowed some flexibility. Throughout this period, the lira was only devalued once, in 1992, in the wake of the turbulence seen in Europe, which saw the pound sterling ejected from the Exchange Rate Mechanism (ERM) and the devaluation of the Italian lira among others. Otherwise, the Bank’s determination to maintain the peg never wavered. We never blinked. The ability to maintain the peg may have been partly due to restrictions on trade and stringent controls on capital movements, at least in the early decades. By the mid-1990s, however, trade and financial market liberalisation meant that these factors became less and less important. Instead, major reforms in 1994 brought about fuller independence for the Central Bank and a gradual liberalisation of interest rates amid increasing recognition that, in the absence of capital controls, monetary policy had to be more actively oriented towards maintaining the peg. Throughout, the lira was buttressed by a healthy stock of external reserves. The Central Bank of Malta was legally bound to maintain reserves equivalent to at least 60% of the monetary base, but in 3  For a review of Malta’s monetary and exchange rate policy over the years, see Anton Caruana Galizia (1989) “Malta’s exchange rate policy since the breakdown of the Bretton Woods system” in the Central Bank of Malta Quarterly Review, June 1989 and Aaron G Grech (2003) “The framework of monetary policy in Malta”.

A number of regional and global business processing centres and other regional facilities have been set up including the OHQs, regional offices, international procurement centres and regional distribution centres. Ladies and Gentlemen, As part of the Government policy commitment to improve the delivery system and reduce the cost of doing business, the Central Bank has undertaken a progressive liberalisation of domestic rules and regulations to reduce the cost of doing business. An area of focus has been the rules governing the foreign exchange transactions. Reducing cost of managing risks associated with such transactions include the recent liberalisation of rules on foreign currency accounts, interest rates swaps and hedging. To broaden and deepen our capital markets, the multilateral agencies and multinational  corporations are now allowed to issue bonds in Malaysia. Going forward, Malaysia will continue to undertake further liberalisation while balancing the need to accord flexibility and choices to businesses with the macroeconomic objectives of ensuring stability in financial markets. Ensuring such long-term stability that facilitates planning and investment decisions has been an important part of maintaining our competitive position. In the development of our financial sector, the banking sector continues to be the pillar of the financial system and is now at its strongest position with high level of capitalisation, improving asset quality and stronger profitability. Policy initiatives to strengthen the banking system, including in the areas of regulatory and supervisory frameworks, risk management, corporate governance and best practices in transparency and disclosure have contributed to strengthen the system further.