by central banks and governments today account for approximately ten times the annual worldwide production of gold. prospects of official gold sales therefore have an inherent ability to destabilize the gold market. the initial washington agreement and the follow up agreement have demonstrated that official sales are best conducted in the context of a clear and transparent overall framework. while the terms of the agreement were not rigid in their nature, they provided sufficient guidance to the gold market to prevent excessive market volatility. in the event that official gold sales continue to be meaningful beyond the current central bank agreement, a new set of parameters will have to be established upon its expiry. moreover, should the imf or any other official institution decide to sell substantial gold reserves during the next couple of year, it strikes me as essential that such additional sales get incorporated into the existing framework. even within a broad international framework, national sales are best conducted on the basis of a clear and transparent sales strategy. in the case of the snb, the specific sales programs evolved over time but the principles of regularity and transparency were maintained throughout. market participants knew at all times what the snb was doing with regard to its gold sales. moreover, the market knew how the sales were conducted. finally, while there were a number of adjustments over the five and a half year period, the snb never departed from the principle of regular and transparent sales. as a result, market rumors and price volatility associated with snb ’ s sales practices were virtually non - existent. in a similar light, the snb ’ s experience as a gold seller suggests that it is best to consider ex - ante to what extent performance considerations should play a role in how the sales are conducted. in the case of the snb, the governing board made a number of key performance related decisions at the outset : to limit the foreign exchange risk associated with the dollar proceeds of the sales, to allow clearly defined active trading around the daily sales quotas, to use a conservative option strategy to achieve a modest outperformance and to assure competitive pricing from the dealer community. once these parameters were set, little room was left for discretion by the governing board or the snb ’ s trading desk. human nature being what it is, we all know that too much discretion can quickly turn into room for judgmental error, particularly at times of heightened market pressure. a central bank in particular has every incentive to minimize such room for error in all its activities as its all

framework will tend to support both an ability and a willingness to act on the part of the macro - prudential authority. it is also important to clearly articulate the processes underlying the policy framework, including the links between the tools, the intermediate targets of a policy intervention, and the ultimate stability goal. in doing so, macro - prudential authorities can improve public understanding and build an enduring constituency for financial stability. 6 the imf ’ s recent financial sector assessment programme ( fsap ) benchmarked the new zealand macro - prudential framework against their view of emerging best practice. 7 the report noted approvingly the bank ’ s clear mandate for financial stability, independence of the bank ’ s decision - making process, and a demonstrated willingness to act. key recommendations of the report were to further clarify the respective roles of the bank and the minister when considering variations to the framework, such as inclusion of a debt to income ( dti ) instrument in the toolkit, and to continue to enhance accountability mechanisms. what does all this mean for the new zealand framework going forward? i will first discuss the policy instruments and then turn to the governance framework. the policy instruments 3 / 7 bis central bankers'speeches i doubt there is a single set of instruments that will always be relevant to meet evolving macrofinancial risks. however, based on our own and international experience, i expect that both lvrs and some form of debt servicing instrument will become part of the macro - prudential “ furniture ” over time. they represent the two key risk factors in mortgage lending, and i expect housing cycles will continue to be an ongoing ( but variable ) source of systemic risk in the nz financial system. the counter cyclical capital buffer ( ccb ) is likely to remain as part of the basel 3 framework and is commonly used internationally, including as a signalling device. while it has not yet been activated in nz, it could be given closer consideration when the reserve bank comes to look at minimum capital ratios as part of its broader review of bank capital requirements. the core funding ratio ( cfr ) is an existing ( micro ) prudential policy instrument. it currently requires banks to have at least 75 % of their funding in “ core ” instruments such as retail deposits. while not yet used as a macro - prudential tool, it could easily and usefully be activated in response to an increase in system - wide liquidity risk. the sectoral capital ratio ( scr