its raw materials ( iron ore, coking coal ), and on the costs of shipping. these effects have amplified the normal cyclical pick - up caused by general recovery in the industrial economies around the world. the australian resource sector might have been able to supply even more of this demand had more capacity been available, but constraints seem to have been binding in some areas ( which, of course, is one reason the effect on prices has been so strong ). presumably there are good prospects for expanding investment in various parts of the resources sector in the years ahead. the rapid growth of china ’ s demand for energy has also surely had a tangible impact on oil prices. while there are apparently some short - term special factors at work in the most recent very high oil prices, the trend increase in the global demand for oil is now strongly influenced by china ( and other rapidly growing countries in asia ), as shown in the chart below. the figures which put this trend at its most stark are as follows. over the two years to march this year, global demand for oil rose by about 4 million barrels a day. about 1. 5 million barrels of this came from the oecd countries as a group - who use over 60 per cent of supply. about 2. 1 million barrels a day in additional demand came from asia including india, with 1. 5 million barrels of that from china alone. 1 cumulative global oil demand growth since 1997, million barrels per day million bpd projection million bpd other asia ( excl. china ) china - 2 oecd - 2 source : international energy agency now it is important to keep the recent rise in oil prices in perspective : it is nothing like as large in proportionate terms as occurred in the “ opec ” shocks of 1973 and 1979. the level of real oil prices remains much lower than in either of those episodes and the share of oil in total production costs for advanced economies is much lower than it was in those days. oil price real base = january 1970 us $ us $ nominal real however, given the extent of chinese and asian demand generally, and their likely trend growth in the future, it seems entirely possible that the level of real oil prices of the 1990s will turn out to have been on the low side of what could be the norm in the future. more generally, we can see a quite important change in relative prices occurring associated with the rise of china : prices for many manufactured goods are declining relative to those of resources. as a

important, but perhaps not as important as the questions'what are the board's goals?'and'does the board have the tools, and the independence, to pursue them?'it goes without saying that a central bank must also have the highest reputation for probity, which carries obvious requirements for the behaviour of board members, governors, management and staff. but in addition, as in the commercial arena, it must also have, and be seen to have, strong formal internal governance processes – in financial management, audit ( including external audit ) and risk management – so as to be able to provide appropriate assurance to its community. as in the commercial world, risk management is a rapidly growing area in central banks. it is likely, moreover, that an increasing share of the assistance given to emerging market countries in the next decade will be in helping them develop their own risk management and auditing capabilities. 2 / 4 2. arm's length dealing with financial markets the second key arrangement for a well - functioning financial system – again using a fairly broad definition of the word'governance'– is that the public sector deals at arm's length with financial markets. in other words, markets set financial prices and allocate financial resources. there are two dimensions here. first, governments should pay the market price for resources that they seek to use for public policy purposes. this means borrowing in the market ( if borrowing is needed ) at the market rate, not at an artificially reduced rate from banks or the central bank. ( this is, of course, a key element of central bank independence. a central bank can't seriously hope to run an independent monetary policy if the demands of government finance dominate its balance sheet. ) for markets to be able to price government borrowing properly, they need some information about governments'intentions – a degree of fiscal transparency is required. such transparency is a good'governance'principle for public policy anyway ; countries which have adopted it, including australia, find this is ultimately repaid by governments being able to obtain funding more cheaply. second, care must be taken when governments direct financial resources by using their ownership stakes in financial institutions. at early stages of development, there may be a strong case for extensive public - sector involvement, where the private system is in its infancy. this was seen to be the case in australia in earlier times. but as time goes by and the private sector becomes more vibrant, the benefits of extensive public - sector participation have to