specific development that has been of serious concern to me as well as to international bankers watching our banking industry from overseas. financial institutions are subject to an obligation of secrecy. in a democratic society citizens are entitled to the protection of their privacy. the obligation to maintain banking secrecy applies to all those who are employed by banks as well as to the banksa€™ external auditors and board members. however, while the importance of public interest cannot be readily disregarded privacy of individuals cannot be taken that lightly. confidentiality of information and banking secrecy have been and remain an important pillar of banking business throughout the world. once the trust placed by individuals in banks is lost, it cannot but be a one - way ticket to irrecoverable damages to our financial system and to our economy as well. in the banking industry we are very much aware of the grave consequences of a loss of confidence in banks. all of us, particularly those of us having an elevated sense of responsibility should size up the gravity of the consequences for our economic and financial system, more so at a time when the present international environment is so inhospitable to the plight of small island economies like ours. having said that, i am pleased to learn that the mpcb is proposing to increase its capital from rs 280 million to rs 750 million by the end of next year. let me wish the chairman, members of the board of directors, the chief executive and staff of the mauritius post and co - operative bank ltd. the very best of success.

there is a huge theoretical literature on central banks ’ solvency. i read the conclusions as follows. nearly all analysts agree that a central bank cannot go technically bankrupt as it bis central bankers ’ speeches can issue as much currency and reserves as needed to face its payments and commitments. indeed, a few central banks with great reputation have operated in the past with negative net equity for long periods of time. most economists would point, however, that unlimited issuance of base money would certainly endanger price stability in ordinary circumstances. so, while the existence of a central bank cannot be put into danger by its technical insolvency, its ability to fulfill its mandate might certainly be compromised. and so would its independence as the central bank would depend on the government to rebuild its capital. it is very important to understand that the eurosystem is fully protected against such a contingency. it has been created with a solid capital base and has kept strengthening it through retained profits and occasional recapitalizations. the eurosytem is unique, in this regard, amongst advanced economies. both its independence and ability to fulfill its mandate are guaranteed even in very adverse economic circumstances. while it should not lead to complacency and negligence, the existence of such buffers should alleviate any concerns about the potential risks that the expansion of the balance sheet may entail. finally, huge central banks ’ balance sheets may be seen as influencing the allocation of resources, or effecting implicit fiscal transfers, an issue of special sensitivity inside the euro area. to discuss this question, it is useful to refer to the famous musgrave classification of public policies between three purposes : allocation, distribution and stabilization. there is no doubt that monetary policy is only and exclusively concerned with stabilization – and a very focused part of it : price stability. no monetary policy action should be taken for any other purpose. so to the extent that “ unconventional ” tools are implemented, there should be no ambiguity as to their close link with the central bank ’ s mandate of price stability. i believe that has been the case in all major countries and certainly so in the eurozone. 4. how to mitigate unintended consequences? the truth is, however, that the real world does not always fit perfectly with the beauty of musgrave ’ s classification. some public policies may aim at several objectives. others may inadvertently, have unintended side effects. all public policies with no exception, health, energy, infrastructures, unwillingly affect