official institutions are likely to include this currency into their reserves portfolios ( or increase current holdings ). an opinion piece by jukka pihlman in yesterday ’ s financial times pointed to the potential significant demand for renminbi, estimating that even a conservative one per cent reallocation of global reserves each year would result in inflows of about usd80bn annually. amid the lack of allure of traditional government bonds, which could be in play in the foreseeable future, alternative instruments and assets, such as equities, could feature in future saas. some research has shown that improved capital preservation, while generating somewhat higher returns, is on offer from equities relative to bonds. but any broad based moves into equities will be highly country - specific. concluding remarks there can be no doubt that the game has changed for central bank reserves managers. the fast changing world and investment landscape is requiring of reserves managers to adapt to a playing field that is characterised by high levels of uncertainty and volatility, resulting in the need to reconsider investment strategies on a more frequent basis. this will necessitate saa processes that are vigilant and rigorous. old and trusted assets are not yielding returns and some are even eroding capital. new instruments and assets that fall within the familiar and accepted investment universe are not plentiful. bis central bankers ’ speeches reserves managers must keenly evaluate factors such as investment time horizons, what constitutes and acceptable risk - return balance, what role alternatives should play alongside traditional asset classes, and whether our traditional benchmarks still fit it in with new strategies. however, at all times reserves managers must also remember that they are custodians of public funds, and have to be guided by prudent strategies, which implies that there must be a limit to “ thinking outside the box ” in the quest for ever higher returns. dealing with these challenges will certainly require human capital that is appropriately skilled, and equipped with the right technology. conferences such as this one present a unique opportunity to share experiences, and transfer skills and knowledge among african central banks, as it brings together central banks with private - sector players, and development institutions, a uniquely powerful combination. i understand that the conference is the culmination of two years of work involving members of the east african community. i would encourage the organisers to find ways of sustaining this momentum. finally, i trust that you will leave arusha with better insights and an

required reserves managers to take stock of their saa as well as review their tactical strategies. for central banks with low reserves, the saa tends to be set along the currency patterns of their foreign trade and external debt. while debt obligations tend to be dollar based, trade patterns can vary more significantly. i remarked earlier that all sadc central banks have euros in their portfolio, which reflects the importance of this region to the continent. however, central banks typically invest in maturities up to three - years, and this part of the german yield curve has negative yields of around 40bps. for countries with larger reserve holdings, there are opportunities to enhance returns through lengthening the maturity of investments or adding credit risk to the portfolio. however, such strategies in turn bring additional market and credit risk to the portfolio, potentially coming into conflict with the overarching objective of capital preservation. with expectations of higher interest rates in the us, the dollar has strengthened and investors have started to shy away from investing in commodities, including gold. according to bloomberg, the amount of gold held in exchange - traded funds has dropped from 2, 633 tonnes in late 2012 to 1, 494 tonnes in november 2015. there has been a striking correlation between the gold held by these funds with the dollar price of gold. gold holdings in these funds are still substantially higher than pre - 2008 levels and therefore there is a risk bis central bankers ’ speeches of further unwind. for south africa, the decline in the gold price has seen the dollar value of gold holdings decline from us $ 7, 1 billion in september 2012 to us $ 4, 6 billion at the end of october 2015. another consequence of the global financial crisis was a significant tightening in the regulatory framework. the new regulatory environment ( introduction of basel iii and doddfrank ) in financial markets has raised concerns about liquidity, especially in fixed income markets. the concerns stem from the fact that many global investment banks and market makers are adjusting their balance sheets, and consequently their business operating models, in order to comply with these new regulations and deal with the associated costs structures. as reserves managers, we should be acutely aware of how market liquidity develops so that we are confident that we will be able to convert assets into cash when required. the risk is that it is exactly in crisis times when central banks may need to tap into reserves, and it is in crisis times that market liquidity tends to disappear. finally, we should not overlook the role of technology