in order to achieve a set of objectives such as support and maintain confidence in the monetary and exchange rate policies, limit external vulnerabilities by maintaining foreign currency liquidity to absorb shocks during times of crisis, to provide a level of confidence to markets, demonstrate the backing of domestic currency by external assets and meeting its foreign exchange needs and external debt obligations. 27. however, the design of investment portfolios varies widely across countries, reflecting essentially the exposure to liquidity, currency, interest rate and counterparty credit risks and the scope of active management thereof. portfolio design takes into account a host of factors such as exchange rate regime adopted by the country, the extent of openness of the economy, the size of the external sector in a country ’ s gdp and integration of financial markets. 5 / 7 bis central bankers'speeches 28. india has been frontrunner in terms of international best practices in the management of foreign exchange reserves. according to latest international monetary fund ( imf ) guidelines, reserve management should seek to ensure that ( 1 ) adequate foreign exchange reserves are available for meeting a defined range of objectives ; ( 2 ) liquidity, market, credit, legal, settlement, custodial, and operational risks are controlled in a prudent manner ; and ( 3 ) subject to liquidity and other risk constraints, reasonable risk - adjusted returns are generated over the medium to long term on the funds invested. the broad objectives of reserve management in india runs on similar lines. while liquidity and safety constitute the twin objectives of reserve management in india, return optimisation is kept in view within this framework. it can be found even in the preamble of the reserve bank of india ( rbi ) act 1934, ‘ to use the currency system to the country ’ s advantage and with a view to securing monetary stability ’. here monetary stability may be interpreted as internal as well as external stability, implying stable exchange rate as one of the overall objectives of the reserve management policy. while internal stability implies that reserve management cannot be isolated from domestic macroeconomic stability and economic growth, the phrase ‘ to use the currency system to the country ’ s advantage ’ implies that maximum gains for the country as a whole or the economy in general, could be derived in the process of reserve management7. 29. the reserve bank of india act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets ( fca ) and gold within the broad parameters of currencies, instruments

me now talk a bit about micro - finance. i believe that as we move forward it is critically important that the rural sector plays a more active role in the economic growth of our country. we have to get more of our people who are currently economically inactive or underemployed into the economic mainstream. by doing this we will – not only bring up the living standards of our people but also reduce the growing poverty in the country. but this has not been an easy task, as we discovered in the past. it is important that we do not give up. our leaders must continuously seek to identify the constraints of rural development and work to overcome these. microfinance is one area which i hold very dear to my heart. over the years, i have been closely observing how our rural sector was being neglected. i have witnessed how past policy failures and poor governance issues attributed to the increased poverty in the country. these are clearly seen in the huge increase in the squatter population mainly over the last ten years or so. i believe, with the right kind of financing and support our rural sector can grow and dominate the growth of the economy. i believe that we need to get the capital to work with the resources, somehow. i have challenged and am encouraging the commercial banks to change their banking practices and not only concentrate on big businesses. micro finance is done very successfully in asia and south america. almost every central bank in asia and south america has special micro - finance areas and they expect all their commercial banks to be actively involved in rural development. i am convinced that there is no reason why commercial banks in fiji cannot have microfinance specialisation as part of their operations. if this is working well in asia and south america – why not fiji? i believe that the key is to change mindsets and styles of their operations through designing their banking services to suit the banking needs of the rural areas. i have set a time frame with commercial bank ’ s to set up microfinance centres in each of their branches by january 2010. we are also playing our part in micro finance at the reserve bank. we have set up a special department in the bank to lead research, development and implementation of financial system products, projects and initiatives such as micro - finance, small micro and medium enterprise, rural banking, financial inclusion and literacy. the reserve bank in partnership with some donor agencies such as the undp will conduct a two - day workshop on micro - finance in the next couple of weeks.