prevention, correction, and crisis management categories. these are outlined in tables 1 and 2 below. table 1. framework overview financial system risks identify allocate price and / or powers & actions manage purposes financial stability exists when risks are adequately identified, allocated, priced and managed identify ensure risks are form view of rb act prevention market allocated to those how well risk is credit correction failure / who are willing, priced ; and / or rb capital operational source of aware, and best how well risks and balance crisis financial able to manage are being sheet market management risk. them. managed. markets liquidity institutions payment systems table 2. reserve bank activities and the reserve bank act relevant sections and parts of the reserve bank of new zealand act ( 1989 ) are in brackets ( see also sections 5, 7 and 39 ). information and monitoring : financial stability report ; monetary policy statement ( s 15 ) ; provide advice to the minister of finance ( s 23, s 33 ) ; information and disclosure relating to payment systems ( part 5b ) banks : prudential regulation ( bank registration, capital requirements, connected lending limits, disclosure, outsourcing policy ) ( part 5 ) prevention liquidity : provide liquidity to the banking sector through the payment system, open market operations, bond lending facility, issue of currency ( s 8, s 25, s 39 ) payment and settlement systems : provision of critical infrastructure eg nz operator of esas / austraclear ( s 32, s 39 ) ; support for the cls'adoption of nzd, designated payment systems ( part 5c ). holding portfolio of foreign reserves for intervention purposes ( s 24 ) intervening in the foreign exchange market for monetary policy purposes ( s 16, s 17, s 18 ) correction primary function is maintaining price stability ( s 8 ) impose prudential requirements upon banks ( part 5 ) ; ability to alter conditions of registration on banks ( s 74 ) ; powers to give bank directions ( s 113 ) acting as lender of last resort ( s 31 ) crisis management statutory management ( s 117 ) powers to give bank directions ( s 113 ) foreign exchange intervention ( s 16, s 17, s 18 ) prevention most of the reserve bank's activities are aimed at preventing financial crises and thus promoting financial stability. for example, in the prudential supervision of banks an important element is the registration process. this process is directed to ensuring that banks are established with appropriate governance arrangements and capability, as well as having adequate capital for

of supervising the institutions in the banking system has been allocated to a separate supervisory agency. ) and these are extremely important goals. to see just how important, it is worth reflecting on the economic and human cost incurred by many countries when central banks got policy wrong and contributed to the strong deflation of the thirties. or reflecting on the economic and human cost incurred by those countries which experienced hyperinflation at some stage during the last century. or reflecting on the economic and human cost incurred by those countries, including many in our own region, which experienced severe banking sector crises in recent years. when central banks get it wrong, when they allow the value of the money which they issue to fluctuate substantially, as in the case of serious deflation or high inflation, or when they allow banking systems to become unstable, the damage which can be done is enormous. savings can be destroyed. businesses can be destroyed. jobs can be destroyed. lives can be destroyed. indeed, whole societies can be destroyed. so let me not understate the importance of the role which central banks can play. when central banking is done well, it not only avoids those catastrophic results which have been seen around the globe from time to time, but also makes some positive contribution to economic growth, to social justice, and perhaps even to the integrity of society itself. as a former governor of the us federal reserve system used to say, " a place that tolerates inflation is a place where no one tells the truth ". what central banks can achieve today i want to focus on the responsibility which central banks have for keeping the value of money stable, for keeping inflation low, rather than on their responsibility for the financial system. to what extent do central banks make a contribution to economic growth and social justice by keeping the value of money stable? nobody seriously doubts that both hyper - inflation and significant deflation can do real damage to economic growth, and that by avoiding both central banks can make a considerable contribution. but what about the contribution to growth from keeping inflation in low single figures, as compared to the double - digit inflation which both our countries endured during much of the seventies and eighties? perhaps inevitably, this is still a matter of ongoing debate among economists. some claim that the contribution is negligible, that beyond avoiding the catastrophes of hyper - inflation and significant deflation the contribution which inflation control makes to economic growth is very small. others see a rather larger contribution, through the fact that the pricing system works more