we can do is preserve the flexibility that the economy has, and enhance that flexibility wherever we can. ultimately, this is the best insurance that we can take out against the uncertain world in which we live. i would now like to turn to the three issues that i mentioned at the start : expanding the supply side of the economy, housing, and inflation. in each of these areas, the situation in australia is different from that in most of the other developed economies. expanding the supply side australia starts the current expansion with considerably less spare capacity than earlier thought likely, and with less than at the starting points of previous expansions. this is clear from surveys of capacity utilisation by businesses. it is also clear from the labour market data, with the unemployment rate peaking at around 5¾ per cent, which was around the trough in the previous two cycles ( graph 1 ). these outcomes put australia in quite a different spot from that of most other advanced economies. in both the united states and europe the unemployment rate is around 10 per cent, and both economies are estimated to be operating at around 5 per cent below their potential. the issues we face are therefore quite different from those confronting most of the other advanced economies. elsewhere, the challenge is to get private demand to grow on a sustainable basis so that it can catch up with the supply potential of the economy. in contrast, for australia, the main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise. this is unambiguously a better position to be in, but it does pose some challenges. the obvious keys to improving the supply side of the economy are investment and productivity growth. in terms of investment we are doing well, with australia having become a high investment country over recent times. currently, business investment is equivalent to around 16 per cent of gdp – not far below its peak level in the past four decades – and is expected to rise a little further over the next couple of years ( graph 2 ). investment in the resources sector has been particularly strong, and this is now starting to bear fruit, with resource exports rising recently following a number of years where there was little growth ( graph 3 ). over the years ahead, further significant increases in resource exports are expected. the high overall rate of investment means that the capital stock is increasing at a faster pace than over recent decades, and this should underpin continued growth in the supply potential of the australian economy. in contrast,

made by some countries such as the philippines and eastern european countries to involve governments in retail payment development by diverting revenue receipts from income tax, custom duties and other income sources through modern retail payment instruments. iv. establish confidence in payments media : either the service providers, the regulators or consumer protection authorities, or all of them jointly, should ensure that new products are safe and efficient and that they have public confidence in them. pushing efficiency too far could adversely affect public confidence in payment instruments. for example, moving aggressively into credit cards, which are considered to be efficient and safe payment instruments, has also resulted in numerous frauds and risks, and this has begun to scare people. new technologies break physical distance barriers enabling efficient real time transactions, but the critical factor is network security, which should ensure access only to a person ’ s own funds. new delivery channels for retail payments such as the internet, on - line personal payments, electronic bill presentments, telephone, e - cheques or e - invoices are becoming popular, although they do not always assure the same level of security as some of the other products. tamperproof cards are generally considered to be safeguard against credit card frauds, but the relevant software appears to be expensive. financial intermediaries are not keen to invest in such safeguards. even if they do, they will pass on the costs to customers, which will defeat the affordability purpose. vendors and service providers need to be flexible to pass on the benefits of technological advances to a larger group of users. demand driven innovations should also be promoted and vendors should look for volumes and turnover, rather than high - priced software sales. 5. agenda for saarc region payment systems development 5. 1 the banking community in india as well as in other saarc countries need not reinvent the wheel. there is good news. following a request made by the saarc country governors, a saarc payments initiative has been set up to take forward the payment reforms in the region. within this initiative, a saarc payments council ( spc ) has been set up, consisting of high level officials from saarc central banks who are also the chairpersons or senior members of their national payment councils. spc will be the policy making authority for both high value and retail payments. the organisational structure is considered a very practical one, because of the involvement of all national stakeholders in the national payments councils, which will provide a good forum for the banking