benchmarks while the new vwap methodology will help ensure that bbsw remains a robust benchmark, it is important for market participants to ask whether bbsw is the most appropriate benchmark for the financial contract. for some financial products, it can make sense to reference a risk - free rate instead of a credit - based reference rate. for instance, floating rate notes ( frns ) issued by governments, non - financial corporations and securitisation trusts, which are currently priced at a spread to bbsw, could instead tie their coupon payments to the cash rate. however, for other products, it makes sense to continue referencing a credit - based benchmark that measures banks'short - term wholesale funding costs. this is particularly the case for products issued by banks, such as frns and corporate loans. the counterparties to these products would still need derivatives that reference bbsw so that they can hedge their interest rate exposures. it is also prudent for users of any benchmark to have planned for a scenario where the benchmark no longer exists. the general approach that is being taken internationally to address the risk of benchmarks such as libor being discontinued, is to develop risk - free benchmark rates. a number of jurisdictions including the uk and the us have recently announced their preferred risk - free rates. one issue yet to be resolved is that most of these rates are overnight rates. a term market for these products is yet to be developed, although one could expect that to occur through time. another complication is that the risk - free rates are not equivalent across jurisdictions. some reference an unsecured rate ( including australia and the uk ) while others reference a secured rate like the repo rate in the us. http : / / www. rba. gov. au / speeches / 2017 / sp - dg - 2017 - 09 - 08. html 3 / 5 08 / 09 / 2017 interest rate benchmarks | speeches | rba as the rba's operational target for monetary policy and the reference rate for ois ( overnight index swap ) and other financial contracts, the cash rate is the risk - free interest rate benchmark for the australian dollar. the rba measures the cash rate directly from transactions in the interbank overnight cash market, and we have ensured that our methodology is in line with the iosco benchmark principles. [ 6 ] however, the cash rate is not a perfect substitute for bbsw, as it is an overnight rate

of many market participants, and this varies significantly across jurisdictions. this variation, coupled with the diverse nature of fx markets globally, means that a ‘ one size fits all ’ approach to adherence would not be appropriate. the final framework for adherence will need to strike the right balance between respecting the existing diversity across different markets, and maintaining consistency with regard to what is a global initiative. in that regard, we have articulated three principles which underpin our overall approach to adherence. • universal : the global code should apply to all wholesale fx market participants, based on the activities they undertake and subject to compliance with any applicable regulations. we have been working hard to incorporate the perspective of all types of wholesale fx market participants into the draft code, and we want it to be widely applicable across the market. • proportionate : how wholesale fx market participants adhere, and demonstrate their adherence, to the global code should be proportionate and appropriate to the type of participant and the context of the local financial markets. • transparent : the mode of adherence should be transparent, to enable monitoring and market discipline. it is worth stressing that the “ proportionate ” principle is not designed to lower the bar – it is designed to reflect the differences in the type and volume of market activities of certain market participants and the variation in fx markets worldwide. the concrete details of the adherence mechanisms remain a work in process. we will have more to say on this in new york in may. at this stage, our thinking is that there is unlikely to be a single adherence mechanism but rather a suite of mechanisms. conclusion that, i trust, gives you a reasonable overview of the state of play on the global code. a lot of work has been done to get us to this point. there is still a lot of work to be done. the work to date has reflected a very constructive and cooperative effort between the central banks and market participants. all of us recognise the need to restore the public's faith in the foreign exchange market and the value of the global code in assisting that process and also in helping improve market functioning and confidence in how the market functions. i expect that cooperative relationship will continue as we see this process through to its conclusion in may next year. bis central bankers ’ speeches