##ony ( the energy sector ). for most developing countries, foreign exchange is a major developmental constraint. for trinidad and tobago, the constraint has been temporarily eased but it is there and it behoves us to use foreign exchange in a way that best benefits the economy and facilitates sustainable development. there is a limit to which this economy could sustain the current level of foreign investments, overseas land purchases and the like, and still meet our normal consumer and production needs. of course, you could ration through the exchange rate but in a small market like ours with institutional concentration ; this carries serious volatility risks. notwithstanding liberalization, we need to carefully manage the foreign exchange market. the best way of doing this is through a proper balance of market discipline and stakeholder collaboration. all the stakeholders need to play a part. specifically : • the fiscal authorities need to reduce the non - energy fiscal deficit to help contain excess liquidity ; • the central bank needs to intensify liquidity absorption ( and this would imply higher interest rates ) ; • the bank is committed to increasing foreign exchange sales subject to the maintenance of an adequate level of official reserves ( between 6 and 7 months imports ) ; and • the private sector and the banks need to play their part by recognizing the priority to be given to trade and smaller foreign exchange transactions, even if it means occasionally queuing large capital market transactions. it is certainly not in the country ’ s best interest for banks to have to put limits on foreign exchange sales for trade and service transactions while investors amass large sums for offshore portfolio investments. some closing comments on the stock market … one reason advanced for the increased outflow of financial capital is the shortage of investment opportunities locally. the government securities market has been expanded and with a new auction system has been made more transparent. there is no doubt that the stock market has not expanded as envisaged, either in terms of the number or range of offerings. but this is another area where collaboration is essential. to me it is not enough simply to say that the government should seek to privatize certain assets through the stock exchange, as indeed they should. the private sector can also contribute more to expanding stock market activity through debt issues and through new listings. i know this could mean a dilution of control and having to adhere to new disclosure requirements, but these are the inconveniences that we would need to face in order to make that next leap towards development. the stock market displayed robust growth between

a major impact on price stability, many economists have changed their minds and are demanding that central banks should take into account risks to financial stability in their decisions. the ecb has always included financial stability considerations in its monetary policy decisions. in our two - pillar strategy financial imbalances are an important element in deciding what measures are necessary, even when it is a matter of inflation that is too low. in particular, the monetary pillar captures the relationship between excessive credit and liquidity creation, and potential risks to future price developments, including that of a destabilising asset price boom. our actions have a deliberate medium - term orientation. this gives us a sufficiently long horizon to take account of financial imbalances in our strategy. elements of a “ leaning - against - the - wind ” approach are therefore implicitly included. however, should there be signs of financial imbalances emerging, we need to carefully consider whether the use of standard monetary policy instruments is appropriate as a response. there are two reasons for this. first, it could conflict with our mandate to preserve price stability. the bis estimates that the financial cycle typically lasts around 16 years, compared with eight years for the business cycle. this asynchrony can lead to periods in which inflation makes a rate cut necessary, while the financial data favour the opposite. if we take only the financial cycle into account, we may be forced, even with our medium - term orientation, to make compromises in terms of our price stability objective. according to our hierarchy of goals, which gives priority to monetary policy, this would not be permissible. in addition, there is also the question of which interest rate path should be followed to counter excessive credit growth. some studies conclude that in a highly leveraged boom bis central bankers ’ speeches even small changes in interest rates can have a strong impact. 3 other studies suggest, however, that rather large interest rate movements would be required to counteract the financial cycle, but these in turn would cause collateral damage to the economy and price stability. 4 using monetary policy instruments to strengthen financial stability seems to be too crude an approach in view of the heterogeneity in the euro area. so, for example, lending in the period before 2008 was ten percentage points higher in some subsequent crisis countries than in the non - crisis countries. a rate hike by the ecb, which always applies to the entire euro area, would have had too great an impact on those regions that were not affected by