the 12 - month period ended march 2003, it may be observed that the us dollar has weakened significantly on international financial markets. the japanese yen, pound sterling and the euro have appreciated against the us dollar. the rupee depreciated on average by 10. 2 per cent against the euro, 6. 7 per cent against the pound sterling and 1. 7 per cent against the japanese yen but appreciated by 0. 5 per cent against the us dollar. in trade - weighted nominal effective terms, the exchange rate of the rupee depreciated by about 8 per cent. in real effective terms, the rupee recorded a depreciation of about 5 per cent. there is nothing to suggest that the exchange rate of the rupee is in any way responsible for the erosion of international competitiveness. once again concern has recently been expressed about the appreciation of the rupee vis - a - vis the us dollar. in pressing their claim for a higher rate of depreciation of the rupee, some have even leaned on the turkish case. what is not mentioned, however, is that the double digit rate of depreciation of the turkish currency has also been served with a helping of high inflation rate of 27 per cent and high short - term interest rate of 42 per cent. let me say once again that this is far from being a turkish delight! it is more appropriate to view exchange rate developments over a period of time. the more we integrate with international financial markets, the more we have to allow markets work their way through. the exchange rate of the rupee has recently been likened to price determination in a specific market. well, in so far as we are trying to promote a competitive foreign exchange market, the bank of mauritius is quite comfortable with this reference. indeed, we welcome it because the market under reference is the only market in mauritius that is closest to the textbook model of perfect competition. currency appreciation or depreciation cannot be a panacea for all our economic ills. we should not forget that appreciation or depreciation of a currency could be a mixed blessing. in terms of macroeconomic policies, the authorities usually have to make a policy trade - off between the extent of exchange rate adjustment and the inflation rate. it must, however, be emphasized that the way forward for mauritius is for it to become competitive through the achievement of real productivity gains. a deliberate policy to depreciate the rupee can only be a temporary solution and not a permanent

as conditions improve. but would this commitment be sufficient to align the incentives of all the actors involved? in the economic jargon, is this promise “ time consistent ”? or will other economic agents expect the policy - maker to deviate from its stated intention and adjust their actions accordingly? economic literature stresses two elements that add credibility to such commitments : strong institutional frameworks setting out clearly defined objectives ; and the adoption of “ rule - type behaviour ” that consistently and predictably determines the response of policy - makers to specific circumstances. these elements allow a policy - maker to steer the expectations of other actors in line with its long - term intentions, thereby mitigating the time inconsistency problem. as regards monetary policy, the institutional framework set up for emu – central bank independence and price stability objective being the key elements – has proved to be strong and effective. the crisis has shown, in my view, that the “ rule - type behaviour ” has to be provided by a symmetric reaction of central banks to financial forces. in particular, a strong reaction to financial distress in the downturn has to be matched by a strong reaction to financial imbalances during the building - up phase. what is the best way to do this? i believe that a more symmetric reaction to financial forces can be best ensured by according a prominent role to the analysis of money and credit see, for instance, cour - thimann, p. ( 2012 ), “ target balances and the crisis in the euro area ”, forthcoming. bis central bankers ’ speeches developments in monetary policy decisions, especially if this is complemented by appropriate macro - prudential measures. but it should be recognised that monetary policy is only one element of the overall institutional framework. the current sovereign crisis is largely the outcome of severe shortcomings in the institutional architecture of emu, which was not capable of fostering prudent fiscal, structural and financial policies. but policy - makers have reacted to these shortcomings and have set in motion ambitious reforms to strengthen economic governance in europe. earlier today, my colleague vitor constancio discussed the rationale of this reform agenda in great detail. i will therefore not elaborate on this. but i would like to echo his assessment. the repair of the institutional architecture of emu will contribute to addressing the underlying causes of the crisis, thereby also supporting the smooth functioning of emu in the future. conclusions let me conclude. the crisis brought about several waves of financial turmoil