we can all agree the markets stood up remarkably well. international meetings and joint forums such as iosco are a further step towards setting the foundation for more structured lines of communication amongst regulators. participation in iosco taskforces requires resources but helps to develop better appreciation of characteristics unique in other markets, and alternative approaches to addressing regulatory concerns. it is in recognition of this that mas has devoted resources to active participation in iosco ’ s committees and working groups. we have also found the memorandum of understanding ( “ mou ” ) to be a useful instrument for setting out mutually agreed procedures by which regulators may exchange information and provide mutual assistance. since the mid - 1990s, mas has entered into a number of such mous to ensure that the level of regulatory collaboration keeps pace with the capital market linkages that are in place. a formal arrangement enshrined in an mou may not be necessary in all cases, but are helpful amongst jurisdictions with substantive capital market linkages or trading arrangements in place. impetus for international standards the second proposition is the growing impetus for international standards. in this regard, iosco has taken the lead in putting forward a set of principles which its members subscribe to. some of the principles are necessarily pitched at a broad level, to allow members to agree on key areas which regulators should focus their attention. the challenge ahead is to continue working systematically on the principles to further cross - reference against quantifiable standards. there are several reasons why such international standards are important. danger of a weak link in the system the first is that interconnected markets means that transactions involving intermediaries or markets in different jurisdictions are always exposed to the weakest link. as an example, a localised weak link in clearing and custody networks used for cross - border transactions that buckles under stress will have far reaching repercussions on the smooth functioning of counterparties and markets in other jurisdictions. benchmarking the second reason is that, whereas regulations are developed for local usage, international standards are invariably developed under the close scrutiny of different regulators, and are derived after rigorous debate and sometimes protracted fine - tuning. the end product is usually of laudable standards and serves as a good yardstick for domestic practices to be benchmarked against. investor protection the third reason is that a common set of standards facilitates sound regulatory oversight that is based on consistent treatment of cross - border markets and activities. with regulators using the same standards in assessing systems, products and practices, market players that deal

build a solid platform for the growth in the rmb market in australia. 4. investment of foreign currency reserves the fourth element of the growing financial relationship between china and australia is a recent decision by the rba to invest some of our foreign currency reserves in china. this decision by the rba represents the first time that the rba will have invested directly in a sovereign bond market of an asian country other than japan. this decision does, however, build on our existing investments in the emeap asian bond fund initiative, which were made in 2003 and 2005. our current intention is to hold around 5 per cent of australia ’ s foreign currency assets in china. the pbc has approved an initial investment quota and we are currently working through the necessary agreements prior to the investment being made. this decision to invest in china is an important one. it reflects the broader economic relationship between china and australia and our increasing financial ties. it provides greater diversification of our investments and will help with our understanding of the chinese financial markets. over the long run, and particularly as capital account liberalisation occurs in china, the rmb is likely to become one of the major reserve currencies of the region. 5. bilateral investment flows the fifth and final element is an increase in other capital flows between our two countries, including direct investment, portfolio investment and banking flows. these two - way investment flows are still in their infancy, but they have grown rapidly in recent years. according to data from the abs, chinese investment in australia has risen more than fivefold since 2006, with the stock of investment reaching around a $ 20 billion as at end 2011 ( graph 2 ). 3 australian investment in china has also risen significantly over this period, with the stock reaching a $ 17 billion in 2011. it is likely, however, that these data understate the size of bilateral investment, as some funds are intermediated through financial centres including hong kong. a significant share of the growth in chinese investment in australia thus far has been foreign direct investment. this has been largely in the resources sector, although recently there has been some diversification, including into the services and real estate sectors. direct investment has also been an important component of australia ’ s investment in china including investments in financial services. in recent years, australian banks have increasingly facilitated australian investment in china through their provision of cross - border banking services. all of australia ’ s major banks – a number of which are represented here today – have a growing presence in