this together with fragility of the global economic conditions and the strengthening of the us dollar are the reasons the market seems to be sceptical of pace of rate hikes by the federal reserve in the near future. bis central bankers ’ speeches 4. fears of further weakening of the chinese economy, its falling equity market and the depreciation of its currency loom large over global economic prospects. in january, capital outflows from china triggered sell - offs across both advanced economies ( aes ) and emerging market & developing economies ( emdes ), exacerbating currency declines and heightening volatilities. crude oil prices fell to multi - year lows to below us $ 30 per barrel. the risk - off sentiment was reflected in the sharp surge in the prices of gold and the us treasuries and in the unwinding of carry trades undertaken with euro and japanese yen as funding currencies, leading to their unexpected strengthening. markets have somewhat settled down since then but the threat of renewed volatility is ever present. 5. apart from uncertain recovery prospects in the aes, the major reason behind such turbulence is the real prospect of a china slowdown. global economic performance post gfc has been largely supported by chinese growth and demand, particularly for commodities ( oil, industrial metals, etc. ), needed to support the huge infrastructure build - up. during the period 2005 – 2014, china ’ s share in world gdp has increased from two per cent to around 12 per cent. the massive liquidity pumped into the global system as the consequence of the easy monetary policies pursued by the aes ( viz. us, europe, japan, uk ), managed to find assets in which it could be invested, be it emerging market assets or commodities. in fact, commodity prices managed to stay well supported after their post - 2008 crash, until they started to unwind from mid - 2014. ( chart 3 ) bis central bankers ’ speeches 6. there are now indications that china ’ s efforts at rebalancing its economy are facing serious challenges, at least in the near term. prolonged slowdown in developed economies is increasingly making it improbable that even a big economy like china will be able to create the level of demand lost by the advanced economies for much longer. china generated demand as it went on a colossal spree to build infrastructure. in the process, the economy might have created large overcapacity not just in infrastructure but also

such report with reference to september 30, 2003 was put in public domain through websites of both the government of india and rbi in february 2004. the second report on foreign exchange reserves with reference to march 31, 2004 is now available at rbi website. institutional development it has been well documented that the vast size of daily foreign exchange trading, combined with the global interdependencies of the forex market and payment systems involves risks stemming from settlement of forex trades on gross basis. settlement of forex transactions spans different time zones and payment systems. as a result, counterparties assume various types of risks in the course of settlement. as suggested by the sodhani committee, rbi took the initiative to establish ccil in 2001 to mitigate risks in the indian financial markets. as india ’ s first centralised clearing and settlement system for the financial sector, ccil ’ s role in facilitating settlement of both debt and forex transactions is perhaps unique. ccil undertakes settlement of forex trades on a multilateral net basis through a process of novation and all trades accepted are guaranteed for settlement. on an average, ccil daily settles over 3500 deals covering an average gross volume of around us $ 3. 5 billion, representing over 80 % of the market. ccil has been able to offer netting advantage consistently. in addition to benefits of risk mitigation, ccil ’ s intermediation also provides to its members other tangible benefits such as improved efficiency, lower operational cost and easier reconciliation of accounts with correspondents. ccil has improved operational efficiency with a zero failure rate. we will be happy to share our experience with our asian friends. since it started its operations, ccil has consistently endeavoured to add value to the services, and has gradually brought the entire gamut of forex transactions under its purview. it has also, over time, added more and more functionalities enhancing the value of its product. similarly, ccil has also launched a forex trading platform to facilitate us dollar / rupee deals by banks in india. this platform has been given to members free of cost. the platform offers both order matching and negotiation modes for dealing. the usp of the platform is its offer of straight - through processing capabilities as it is linked to ccil ’ s settlement platform. rbi encourages the authorised dealers to take full advantage of this and intends monitoring the use of this platform to make it more user friendly and widely used. in india, the foreign exchange dealers