##upon kept much smaller contingencies, historically sometimes as low as 4 % of liabilities and accessed the joint “ reserves ” at the central bank whenever necessary enabling a much more efficient use of financial reserves than each bank having its own large reserves. thus was born the term “ banker to the bankers ” and “ lenders of last resort ”. thus, in this way central banking for the first time really became a cornerstone of the building of world prosperity and world peace. of course the single reserves might be sufficient under normal circumstances but when things get out of hand, it may not be sufficient, and banks do shut down. the government and the central banks thereupon undertook that most important function of building world peace, which is looking after the poor and the disadvantaged, by putting up deposit insurance schemes, the first being in new york in 1829 but the first nationwide schemes being in czechoslovakia in 1920 whereby at least the smallest and the least knowledgeable depositors are protected. of course, a better alternative would be to try and make banks less liable to failure. since banks are often in an oligopolistic system or at the very least, they are leveraged by the ratio of debt to equity of around 12 : 1, being the inverse of the capital adequacy ratio now defined by the bank for international settlements to be at least 8 %, and using other people ’ s money in a way that normal companies cannot do - the central bank then underpins the viability of commercial banks by supervising and examining them so that sensible decisions are made and fraudulent activities are minimised. surprisingly, that may not even be the biggest way central banks contribute to world peace. for nations taken individually, the biggest function deemed to be of the central banking is monetary policy. by trading in foreign exchange, in local currencies, by credit extension, by rule making, and by setting interest rates, the general level of economic activity can normally be influenced by the central bank. in so doing, central banks used to try to contribute to peace and prosperity by making sure that the less advantaged or the more useful activities or social class and such like have better access to funds in general or to the funds of the central bank, and in the extreme case even go so far as financing projects and infrastructure. in the modern world, it is now normally agreed that each national economy is so vast and complex that central banks could be considered to have done very well if it just keeps the country stable and

let government build infrastructure and help the poor and private sector trade and invest to economically develop the nation. the recent trend is that, central banks are now given the sole task of keeping price stability, and is given the independence to do that since if they have no independence, government will, at time ask it to do things that are in conflict to that sole function. thus the modern central bank is really akin to keeping peace in the nation through enhancing stability and it ’ s other people ’ s jobs to create wealth or turmoil as the case may be, the turmoil being a necessary instrument in coming to the right policies or at time the wrong ones or in an ever worse ending turmoil without apparent purpose as is so often the case in emerging markets. but it certainly is not now deemed the function of the central bank to be doing this sort of thing. so central bankers can now claim that they are basically trying to create peace and hopefully in a peaceful economy, there will be better prosperity than a wildly gyrating one. in a peaceful economy, growing stably at a high but sustainable rate, one cannot expect that there will be no criminals hidden deep down somewhere inside the society. a new instrument has therefore been added to the arsenal of monetary policy and financial supervision in the anti - money laundering legislations. the first anti - money laundering legislation was issued in 1970 by the us government. the mechanism is generally that cash deposit of more than the minimum stipulated amount would be examined. in the case of thailand, this legislation was issued in april and became effective in august 1999. the central bank participated fully in the draft and cooperates with its implementation. we have taken the option though that central banks should be trying to put up a good system for people to operate in rather than having another prime function of catching thieves and criminals, and in this legislation therefore a new independent government office has been put up dedicated solely to the pursuit of the articles of the legislation. we sit on the committee under the legislation as i have just said, and cooperate wherever we can to make sure its execution is effected and effective. this is another occasion where central banks contribute directly to peace in that criminal activities which by nature are not peaceful is kept to a minimum. speaking of criminal activities, vote buying in an election is also a criminal activity and although legislation makes it difficult for us to tackle this problem, we cooperate with the neutral national election commission in tracking down movement of funds and we have assigned an assistant governor to directly coordinate with this