. for instance, when the german bond market was still in its infancy, there was a law in place that required debt to be denominated in local currency unless the central bank gave its special approval for foreign denomination. undoubtedly, such preferential legal treatment of bonds denominated in local currency was conducive to bond market development and to the d - mark becoming its nominal anchor. but, if not applied prudently, regulation can also be a hindrance. especially when it becomes too intrusive and when it suspends the market mechanism. that is exactly what happened in germany after the 1948 currency reform. heavy price and interest rate controls were imposed on market forces and put a serious drag on the emerging bond market. back then we also had to learn our lesson about implementing a sound regulatory regime ; that it needs to be a catalyst, not an impediment to the infant capital market. but it turned out that regulation was not the only key to a successful currency and functioning bond market in the emerging post - war economy in germany. at least equally important was the existence of an independent central bank that could credibly commit to its single mandate of ensuring price stability. during the 1950s, such credible commitment to stable prices, combined with sound fiscal policies, was instrumental in anchoring inflation expectations and in achieving the kind of macroeconomic stabilisation that formed the foundation of the “ economic miracle ” i just mentioned. and this also had a significant impact on investors ’ confidence in local currency bond markets. in short : without a credible central bank, there is no stable currency. and without a stable currency, there can be no thriving bond markets. 2 / 4 bis central bankers'speeches 4. the central bank as a facilitator leaving institutional arrangements aside, which concrete positions can and should a central bank take when it comes to shaping local currency bond markets? in other words, how should a central bank act operationally? well, during the second half of the last century, we at the german central bank interpreted our role as that of a facilitator to the market. there were three key aspects to this role. first, providing support to market participants. when capital markets were liberalised in the mid - 1950s, interest rate volatility surged. consequently, the german central bank promoted the foundation of a capital market commission, a discussion platform, that consisted of the most important market participants. its primary task was to align the timing and volume of upcoming

andreas dombret : facing up to the original sin - experiences of establishing a local currency bond market opening remarks by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the " local currency bond markets " conference, pretoria, 8 march 2018. * * * 1. introduction dear governor lesetja kganyago dear deputy governor daniel mminele ladies and gentlemen i am very honoured to be here today at the conference centre of the south african reserve bank ( sarb ) in pretoria. this conference is another symbol for the close partnership between the sarb and the bundesbank. this partnership, together with our joint chairmanship of the g20 africa advisory group, gave the impetus for this event. the africa advisory group coordinates the g20 ” compact with africa ” initiative that aims at promoting inclusive growth and investment in africa. i am convinced that this conference on local currency bond markets will provide valuable insights on how the initiative ’ s goals can be reached. let me start with a reminder of why we are all here today. true, we have come to talk about local currency bond markets. but why are they important for a country ’ s financial system? time and again, throughout the history of economic development, emerging economies have given in to the temptation to over - borrow abroad, which often gives rise to a significant currency mismatch on their aggregate balance sheets. risky borrowing in foreign currencies can be tempting because it is often cheaper than raising funds at home – last but not least as foreign creditors accept lower interest rates when the exchange rate risk is born by the debtor. in blunt terms, over - borrowing abroad is called the “ original sin ” of an emerging currency because – although it comes at low cost in good times – it may cause serious damage to the economy when there is an abrupt currency shift. in contrast, the existence of a functioning local currency bond market can lower financing costs at home and thereby provide the incentive to reduce foreign currency exposure. in the face of volatile global capital flows, it can therefore help making emerging economies crisis - proof. what is more, sound local currency bond markets support the development of a country ’ s financial sector and can channel foreign capital into an emerging economy, a valuable source of long - term financing for both the government and the private sector. now, some of you may be thinking : why is a german discussing these issues – given that german sovereign bonds count internationally as “ safe haven ” investments and are