, arguably, even more unstable times. at this time of great global uncertainty and local distress, our efforts should be directed towards building stability, not destroying or undermining it. i have given some account in this talk of how, in its banking system and financial infrastructure, and in its currency, hong kong enjoys a position of great strength. it is from this position of strength, and not through any sudden and destabilising gimmickry, that we will best be able to weather the difficulties that now face us, and to embrace the opportunities to come.

the above was that globalization had the effect of increasing the importance of central bank independence, in light of the importance that domestic and foreign investors afford to that factor as a major consideration in their decisions about the countries in which to invest. this was supported by the findings of the 2005 study by professor alex cukierman, which confirmed his earlier results : the independence of central banks and price stability are positively correlated. over and beyond that, central bank independence is positively correlated with high, steady growth, price stability and low rates of interest. there are two types of central bank independence : a. target independence : this is the case with central banks such as the european central bank ( ecb ) that set their own monetary policy targets, such as the inflation target. these central banks also have the resources with which to achieve their targets. b. tool independence : this is the situation in which the government determines the targets for the central bank, e. g., the inflation target, and it is up to the central bank to employ the tools available, generally the interest rate, to achieve those objectives. most central banks have this independence, and in practice so does the bank of israel. in my opinion, this is the preferred and proper situation for democracies. i would like to stress a very important point : an integral feature of central banks ’ independence throughout the world is their administrative independence. this is a vital condition, as it prevents external and interested parties from obtaining the means that they could use to try to undermine the ability of the central bank to make its decisions independently. 2. central bank transparency and accountability the independence of a central bank, especially in democracies, must be accompanied by the bank ’ s responsibility to account for its policies and the achievement of its objectives. for that purpose it is necessary to provide it with clearly defined targets against which its performance can be measured. it is thus important that the central bank submit a regular report to the legislature, government and public on its policy and the achievement of its goals. the report should describe the decisions made and the reasons behind them, the instruments employed and how they were operated, the resources employed and how they were used, etc. thus, for example, with regard to interest rate policy, central banks, including the bank of israel, usually publish annual reports, economic forecasts, periodic inflation reports, minutes of interest rate discussions, press releases on decisions taken, etc. this framework of transparency and accountability ensures an open channel of communication between