- regional trade is now the largest component of total trade for most east asian economies. and its momentum has been an important driver of the region ’ s trade and economic growth. and third is the growth of finance, flows, and market transactions, propelled by the increase in trade and investment between the region and the rest of the world and also by trade within the region. this growth, in my view, is underpinned by a much improved and more diversified financial sector, as well as by a strong presence of international financial firms competing to provide services in the region. and the fourth is the deepening process of regional financial integration, defined as cross - border trade and investment flows within the region. but, many have noted that the progress, while well and good, seems to lag behind that of trade integration. on account of these developments and achievements, two questions are often raised. the first is how the development of the region ’ s financial markets should move forward so that it can best leverage on the region ’ s economic interest and potentials, as well as to ensure that the region will benefit fully from its own financial strength and resources. and the second is that, as the region becomes more integrated financially with the rest of the world, in what way can we ensure that the risk that comes with increased integration is adequately managed, and that the region ’ s financial interest is well protected. these two questions, in my view, are the central themes or the points of focus around which the issues of financial markets and development in east asia are now being discussed in all circles. and from these discussions, a number of important observations have been made that point the ways to the next possible areas of focus in our efforts to further develop the markets. let me share with you some of these observations. the first is that, while it is agreed that more needs to be done to achieve a robust and diversified financial system, the key focus of financial sector reform in the region should remain to be the serviceability or access to finance for the majority of the region ’ s population. this is to say that for financial sector development to really matter, the people of east asia across all income groups must be able to enjoy the access to and the benefits of a modern financial sector. the second is the observation that the region ’ s financial sector continues to be less integrated within the region than with the rest of world. and it follows that, with weak regional integration, the region will lose the opportunity to leverage on

since the central bank had not traded in the interbank foreign exchange market since the middle of 1999. the bank sold us dollars for isk 15. 6 billion over the period. so far this year the bank has taken action in the foreign exchange market six times, and the krona has depreciated by 2. 3 % based on today's rate. there is no denying that central bank intervention has put pressure on the currency reserves. the bank maintains a specified minimum reserves which is now isk 34 billion. if the reserves head below that floor, the bank borrows to maintain it. short - term borrowing by the central bank now amounts to isk 24. 2 billion. the central bank has made extensive contingencies for bolstering the exchange rate if the need arises, most recently with an agreement with a german bank on access to a new usd 250 million credit line. it should also be mentioned that yesterday the treasury made overtures in the european market for a credit facility of 250 million euros, of which 180 million euros will be used to refinance debt that will mature shortly. the remaining 70 million euros ( isk 5. 6 billion ) will be deposited in a foreign currency account at the central bank to boost the currency reserves. talks have been held with the minister of finance on more action of this kind to strengthen the currency reserves. most of the central bank's committed foreign credit facilities are still undrawn. when the foreign exchange market was established in may 1993, a central exchange rate was set with deviation bands of 2¼ % in either direction. in september 1995 these were extended to ±6 %. in february last year the bands were extended once again, to ±9 %. last year's fluctuations in the krona used up all the scope allowed by exchange rate policy before the last extension of the fluctuation bands. the krona depreciated considerably after the middle of last year. the central bank has stated before that it does not identify a high real exchange rate as the root cause of the current account deficit. as pointed out earlier, the real exchange rate has now fallen below its average for the past twenty years. any further depreciation is unlikely to lead to a sudden improvement in the current account balance. on the contrary, a depreciation of the krona would entail risks for domestic companies with foreigndenominated liabilities, especially those with no foreign revenues to match them. thus it is very much