in order to restore market participants ’ confidence in the european banking industry, but also to minimise reputational risk for the ecb. all supervisors in europe are familiar with ad hoc examinations. these are precisely the instruments we should be using here. this is the only way we can avert the suspicion of national supervisors taking too much account of national special circumstances. my other remark follows on directly : it concerns the legacy risks of banks supervised under the ssm. as these risks were created in the past, under the responsibility of individual member states, they should be borne in a national context, too. 6. changes to primary law i have twice mentioned changes to primary law in the context of the banking union : once referring to the ssm and again with regard to the srm. i am indeed aware that many are recoiling at the thought of changing primary law, as it is a long and winding road. ultimately, however, the project of creating a banking union is similar to the creation of the single monetary policy. and, we did things properly then and started by establishing a sound legal foundation. if it was good enough for establishing a monetary union, it will be good enough for a banking union. that notwithstanding, i think the ssm and a restructuring and resolution mechanism should be launched prior to changing eu primary law. however, we should start working on amendments to primary law right away, given the foreseeable difficulties and the amount of time this endeavour will probably take. 7. significance of the single supervisory mechanism to the bundesbank while i am here with you today, the ecb is visiting my colleagues at the bundesbank to put on a “ road show ” extolling its virtues as an employer. as goethe ’ s faust put it : “ two souls, alas! are dwelling in my breast ” – as much as i look forward to a single supervisory mechanism, to the success of which many of my fellow bundesbankers will be instrumental, i will be very, very sorry to have to do without them at the bundesbank. the ssm, after all, is designed in such a manner that the quality and expertise of national supervisors will continue to be the decisive factor. this constituent of the eu – the principle of subsidiarity – will have a place in the banking union, too. nonetheless, themes relating to banks and their supervision and resolution will acquire a new european dimension. and, as long as it is done well, this

• honourable members, you may be surprised to know that almost 2. 0 percentage points of the 5. 5 percent inflation outcome at july end was driven by higher kava prices. even though kava constitutes only 2. 5 percent of our consumer price index ( cpi ) basket, it contributed substantially to the inflation out - turn. as a result, while yaqona farmers benefitted from the high prices, kava consumers had to fork out significantly more for their favourite brown label drink as prices almost doubled by july and rose three - fold by january this year. • for those of us who don ’ t drink kava, our inflation was effectively around 3 percent. external stability • as a small open economy dependent on imports of a variety of goods such as medicine, food, fuel, machinery, etc. we need to maintain a sufficient level of foreign reserves otherwise there will be pressures on our exchange rate. • the international monetary fund has set a benchmark on the level of foreign reserves which states that it should be sufficient to cover 3 months of import. • for fiji, we like to build in an additional buffer above this benchmark as we are prone to natural disasters, which can affect our export sector including tourism as well as external shocks which can significantly increase our import bill, and in turn significantly impact our foreign reserves. • honourable members, i am pleased to inform that in regards to external stability, fiji ’ s foreign reserves remained well above the benchmark throughout the review period. • at the end of july 2016, our foreign reserves were $ 1, 982 million, just $ 18 million shy of the $ 2 billion mark and was sufficient to cover 5. 5 months of retained imports. • these foreign reserves are what the rbf holds in its accounts. in addition, we have allowed a number of non - bank financial institutions to invest offshore. at the end of july 2016, foreign reserves held by other institutions amounted to more than $ 500 million. financial stability • honourable members, it is paramount that our financial system is safe and sound whereby depositors, pensioners, policyholders and unit holders ’ funds are protected. the safety and soundness of our financial system is also crucial in ensuring the confidence of investors and international agencies. • in this regard, i am pleased to inform the committee that the fijian financial system remains safe and sound supported by a growing asset portfolio which rose marginally from the end of 2015 to july 2016 to just over $ 16 billion. this is almost