for a growing population and infrastructure for a growing economy generally would be a key theme. it was clear that there would need to be a significant effort at restoring the state of the budget, so that fiscal expansion would again be possible in the face of a future shock, as it was in 2008 and 2009. all these things were said at the time. 1 see stevens g ( 2009 ) “ the road to prosperity ”, address to the 2009 economic and social outlook conference dinner ( the melbourne institute and the australian ), melbourne, 5 november. bis central bankers ’ speeches where are we, then, six years on? the world economy, despite various threats, has not had a relapse into recession. even with something of a slowing this year, global growth is still proceeding at a moderate pace. that said, this growth has taken extraordinary policy settings to achieve and many policymakers and observers find the outcomes disappointing. most countries around the world would like some more growth. but they can ’ t all get it by just exporting to others and focusing their own demand inwards. and, for a variety of reasons, policymakers are finding the effectiveness of policies aimed at boosting domestic demand more limited than they might have hoped. in some cases the efforts that have been made to foster growth have not been without a degree of risk. for our part in australia, we have managed the biggest terms of trade event for more than a century with, so far, some success. history has many examples of such booms that, ultimately, were not successfully managed and which ended badly. it ’ s easy to see how that happens. a gift of higher national income comes our way as a result of the discovery of natural resources or a rise in demand for them. the higher income permeates through the economy and before long even industries and regions not directly exposed to that shock are feeling good. human nature being what it is, we tend to assume that the good times will continue and we borrow and spend accordingly. credit growth speeds up, leverage increases, usually inflation increases. and then the terms of trade turn down, at which point the whole process goes into reverse – and a serious downturn ensues. the current episode is not yet over. but from what we can observe thus far, we can say two things. first, we did not see the same excesses on the upswing as we did in other similar episodes. 2 this has to put us in a better position to manage the

bilateral foreign currency swaps of considerably larger size, under which a central bank would offer us dollars or its own currency to another central bank in exchange for a corresponding amount of that other country's currency. the nature of such swaps is that no foreign currency risk is run by either country in the swap itself : the rate for the reverse transaction is contracted in advance. of course if the borrowing country sells the borrowed foreign exchange in order to support its own currency, it is then running a foreign exchange risk and the country initially supplying the funds is running a credit risk. the cmi swaps are mostly quite conditional – only a small portion of the money can be accessed without there being an imf program in place in the borrowing country. that proportion is to be raised, but even then the bulk of the funds will still be conditional. the overall size of the lines is being increased, and there is discussion about a collective activation arrangement, as opposed to the current one where the parties to each bilateral line presumably negotiate over activation. executives'meeting of east asia - pacific central banks. 2 / 4 this is certainly a useful step towards financial co - operation, and has considerable symbolic value. but it remains exclusively a lending facility, where the additional resources available to a country under pressure can only be used by taking considerable risk. there is no obligation on the other countries to make market purchases of the weakening currency. moreover, the cmi swap network has not yet been tested, and it is probably only workable when one or two countries come under pressure. if a number of countries are simultaneously experiencing pressure from capital markets, it would be only natural to expect a degree of reluctance to take on any additional obligations in defence of their neighbours. hence, there still seems to be a perceived need for a large degree of self - insurance in the region ( i. e. accumulation of large reserves of foreign currency ). efforts have also been made to accelerate the development of financial infrastructure. work under the banner of apec ( asia - pacific economic co - operation ) is seeking to promote securitisation and credit guarantee markets. the asean + 3 group is working towards the issuance of local currency debt by the multilateral institutions, with some success so far. the asian bond funds 1 and 2, initiated by the regional central banks, have made good progress. the idea here is essentially to work out how to set up cross - border mutual - fund type structures to invest in bonds issued by regional governments and