you may disagree that if foreign investors in bonds want out, they will still sell the bonds, causing the prices to be sharply lower anyway. this is true. but price volatility in the bond market is still better than a run on your banks. therefore an efficient bond market can help lessen the adverse impact that volatile capital flows may have on the financial institutions. a sound financial system is of course a necessary condition for the conduct of monetary policy. the role of non - bank financial institutions let me now turn to the non - bank financial institutions. what can be your roles in relation to monetary policy? i can offer four suggestions. number one, you can make yourself an efficient player in the market. the more efficient the competitors, the better the market is. but in order to compete well, you will have to be well capitalized, well organized with good governance and risk management processes. number two, you can help establish market codes and practices that conform to world standards. the market needs rules to ensure smooth trades and dispute resolutions, and to guard against manipulation. the industry has an important role to play in the setting of rules and codes of conduct. number three, you can help ensure that the market has a wide variety of products. we should aim for a market that can offer many kinds of contract, to serve those needing to unbundled or rearrange all kinds of risks at competitive prices. and lastly, you can build for yourselves a good analytical capability. it will prevent herd behavior, and help to stabilize the market. but more importantly, proper project analysis can ensure that capital is channeled only to the good projects. it can help prevent over expansion of businesses, over diversification and over enthusiasm that inevitably winds up as non - performing loans in the end. ladies and gentlemen the task of the central bank in monetary policy is to ensure that it sets the right policy, and that its policy is transmitted through to the overall economy. the financial system through which their policy is transmitted must also be safe and sound. non - bank financial institutions do indeed have vital roles to play here.

thirachai phuvanat naranubala : the role of non - bank financial institutions in relation to monetary policy speech by mr thirachai phuvanat naranubala, deputy governor of the bank of thailand, at the regional seminar on non - bank financial institutions in east asia region, bangkok, 4 september 2002. * * * i wish to congratulate the securities and exchange commission of thailand and the world bank for organizing such an interesting seminar in bangkok, and to thank them for inviting me to share my thoughts with you today. i can see that the topics in the seminar will cover many important aspects of non - bank financial institutions ’ operations - - ranging from the regulatory and supervisory framework to capital market development as well as the issue of governance. but i am the only person touching on monetary policy aspect. monetary policy does affect an important part of your business, which is the bond market. because the one factor reflected in the bond market yield curve is inflation expectation. therefore, if the framework and the conduct of monetary policy result in low and predictable inflation, it will help curb volatility of the yield curve and support development of the bond markets. change in monetary policy stance also directly affect interest rate and hence the bond market. thus, it pays for you to understand monetary policy. monetary policy in thailand in order for you to do that, i have to start by telling you about how the monetary policy framework has evolved here in thailand. since the end of the second world war, thailand employed the regime of fixed exchange rate one way or another. at the beginning our currency was fixed to the british pound, and later to the us dollar - first directly, then later via a basket with a very heavy us dollar content. the regime had served us very well. it provided certainty for international trade, and it helped to attract foreign investment. we were able to maintain the parity with the us dollar for more than 18 years until 1981 when we had our first devaluation. the pressure on our parity in the early days was slight. thailand ’ s exports at that time were rice, rubber, tin and teak. our production costs for those items were among the lowest in the world. however, beginning from the 1980 ’ s, we began to industrialize. our industrial exports which was only 33 % of the total exports at the end of the 1970 ’ s quickly rose to 76 % in 1990 and even further to 86 % today. with industrialization, we