of a central bank. a central bank can only act as a lender of last resort if it has the means to act as one. this is especially important if the banking system has relatively large liabilities in foreign currency. while a central bank can, in principle, create an unlimited amount of domestic currency, its foreign currency reserves are limited. recent events have highlighted the importance of an adequate level of foreign reserves for financial stability. 6. conclusions i would like to close today by stating that, in my opinion, extraordinary central bank action was indeed justified to counter financial market turmoil, and that it was also successful in halting the developments in mid - march, which threatened to develop into a vicious circle of fire sales and falling asset prices. however, central bank action cannot resolve the underlying problems. it can only provide temporary relief. the solution to the crisis must come from market participants themselves. central bank action appears to have been relatively successful. but there ’ s one thing that every economist knows only too well, and it is that there is no such thing as a free lunch. so the question naturally arises, what has been the cost of the recent extraordinary central bank interventions? the first potential cost of recent central bank action is in terms of moral hazard. one of the biggest challenges that lie ahead of central banks and regulators, once the crisis has settled down, is to consider how to reduce moral hazard in financial markets, in order to prevent this factor from becoming the reason for the next – and potentially even bigger – financial crisis. the second potential cost of recent central bank action could be in terms of inflation. the financial market crisis affects inflation in various ways. on the one hand, the crisis has resulted in a more expansionary monetary policy stance in some countries. this has probably contributed to the rise in commodity prices in recent months, and to the rise in energy prices, in particular. on the other hand, the expected economic slowdown associated with the crisis should dampen inflationary pressure. however, the aggregate effect of the crisis on inflation is far from obvious. the crisis has thus increased the uncertainty surrounding the inflation outlook. consequently, central bankers are currently challenged not only on the financial stability front ; they also need to be extremely alert to developments on the price stability front.

delisle worrell : keeping the economy stable and achieving growth featured address by dr delisle worrell, governor of the central bank of barbados, at the bcci finance & investment luncheon seminar, bridgetown, 28 october 2015. * * * by dint of economic policies suited to our circumstances the barbados economy has been kept stable ever since the onset of the global economic recession, now seven years ago. foreign exchange reserves have been protected by fiscal contraction to reduce spending and importation, to ensure the balance between inflows and outflows of foreign exchange is maintained. as a result, foreign reserves remain adequate, and economic policy and the future development of the economy remain firmly in our own hands. as i have often said, the great value of adequate reserves is that barbadians are our own economic bosses. the challenge before us remains, to use our mastery of our destiny to take actions that further the economic development of our country. i invite you to join me in assessing the advantages barbados brings to the international markets in which we do business, our performances in those markets, the obstacles we face, and how we may overcome them and accelerate the pace of economic development over the coming years. our advantages we are rich in the resources that matter for tourism, international business, culture and other services that can attract business to our shores. these include our equitable climate, our geographical location, our abundant sunshine, the fact that english is our native language, and the physical beauty of our island. we have enhanced our appeal to visitors and investors – and bettered the quality of our own lives – by the investment we have made over the years in health, education, roads, our port and airport, public utilities and our system of law and order. as a result, barbados has the reputation of being a safe, salubrious country, and it scores highly in indexes of freedom and transparency. barbados outshines most of the competition in the majority of global indexes which offer comparisons among countries. we are number one in latin america and the caribbean in the global innovation index, published by the un world intellectual property organisation ( wipo ) and others ; first in the caribbean in the global tourism competitiveness report, published by the world economic forum ; and second only to panama in the caribbean and central america in the global competitiveness report, published by the same body. among factors which work to barbados ’ advantage are the quality of our institutions, our social partnership, the