members of a tribe, but not necessarily beyond that. tribal organization helps individuals to solve the problem of “ me versus us ” ; that is, to define an individual ’ s role in the group. the biggest problem in our societies, however, is “ us versus them ” ; that is, to define the role of my group in relation to other groups. as harvard professor of psychology joshua greene says : “ our moral brains evolved for co - operation within groups but they did not evolve for cooperation between groups ”. we tend to respect and appreciate people whom we trust. while trust may be a dispositional propensity of individuals within a small community, a tribe, it is not obvious in more complex societies consisting of individuals representing a variety of different backgrounds. what then is trust? a standard definition is something as follows : trust is a feeling that you ( the trustor ) can rely on another person ( the trustee ) ; that is, you believe that the other person does not betray or disappoint you. trust is important for any society. trust makes social and economic life predictable. trust makes it easier for people to work together. trustful relationships lead to interactions where both parties benefit. in today ’ s language these are called win - win situations. trust reduces transaction costs. without trust many transactions would become prohibitively expensive. one should enter in complicated arrangements in order to secure the counterparty to the deal fulfils his obligations. trust requires reciprocity. the other person ( trustee ) must by trustworthy. but we know that this is not always the case. we know that there is clear asymmetry in the building of trust versus the destruction of it. once trust is lost, it is very hard to regain. matthew lieberman, social : why our brains are wired to connect, oxford university press 2012. reviewed by julian baggini in financial times, january 3, 2014. joshua greene, moral tribes : emotion, reason and the gap between us and them, penguin press 2012. reviewed by julian baggini in financial times, january 3, 2014. bis central bankers ’ speeches some ten years ago an american political scientist francis fukuyama published a book titled trust : the social virtues and the creation of prosperity. 5 his main argument was that the level of trust is the most pervasive cultural characteristic influencing a nation ’ s prosperity. in low - trust societies people and businesses need to negotiate and often litigate rules and regulations. fukuym

decline has been accommodated without major incident. mortgage delinquencies have edged up, but they remain below the typical levels in industrial countries, and the banks remain highly capitalised and profitable. equally important, property prices have dropped quickly to levels consistent with underlying supply and demand. as a result, markets have remained liquid, and activity has recently picked up. there is a renewed sense of optimism that, whatever adjustments remain to be worked out, the worst is now over. in labour markets, wage freezes are the norm, combined in many cases with cuts in bonuses in sectors that have been most affected by the crisis. nominal wages are likely to show little, if any, growth this year, compared with increases of 7 - 8 % in the period leading up to the crisis. price inflation has also dropped markedly, and has turned negative in recent months. price reductions inevitably cause short - run dislocations. but they are a key channel of adjustment for hong kong, and the improvements in our competitiveness that result will set the stage for a sound recovery. the important consideration is that this process should be completed quickly, and there is every indication that it will be. a few critics maintain that we should have ‘ let the link go ’ during the crisis to allow nominal exchange rate depreciation to restore our competitiveness. i believe that such a step would have been fraught with risks. any direct impact on growth would almost certainly have been offset by reduced confidence in our longer - term policy direction and heightened anxieties about the short - term impact on the financial and corporate sectors. i do not need to remind you that hong kong did not suffer from the structural problems in these sectors that have been ascribed to some other economies. but there is no guarantee that major and lasting damage would not have been done by the types of dramatic exchange rate overshooting that have been witnessed elsewhere in the region. and it is unrealistic to expect that exchange rates would not have overshot, given hong kong ’ s openness and exposure to international capital flows. if hong kong ’ s peg had been abandoned last year, it is likely that the attacks on other regional currencies would have been even more dramatic and widespread, with negative feedback on the region and on our own performance. that asia — including hong kong — now appears to be entering a recovery phase was by no means assured twelve months ago. we might well wonder what conditions we could now be facing had the crisis proceeded to yet another