% as of last friday, singapore strait times index by 32 %, the nikkei 225 by 28 % and the other asean indices by between 50 - 60 %. thus, markets adjust irrespective of the exchange rate regime and the unit of account. 28. is there any easy way of avoiding the pain of adjustment in asia due to rising global competition? the answer is clearly no. as a general rule, the faster we adjust, the less the pain. there have been different approaches to this issue. there are some who think that a floating exchange rate regime would cushion the pain, but many forget that hong kong has tried the floating exchange rate regime before, in 1974 - 83. during that period, growth was more volatile and inflation much higher than what we are experiencing now. as an open economy with trade accounting for 285 % of gdp, any inflation would be immediately imported under exchange rate volatility. the recent experience in asia actually shows that contrary to the theory, floating exchange rates requires even higher interest rates, because of the higher risks associated with exchange rate volatility. 29. here i would like to correct the common image that the hong kong ’ s exchange rate regime is a peg. the hong kong dollar is a fixed exchange rate, not a peg which can be adjusted from time to time. the linked exchange rate system in hong kong operates as a currency board system whereby the issue of hong kong dollar notes is fully backed by the us dollar at the fixed rate of us $ 1 to hk $ 7. 80. such a note - issuing mechanism ensures that currency issued is fully backed by foreign exchange. with the sustained budget surplus and accumulated surplus on the exchange fund and land fund assets, the actual amount of foreign reserves in hong kong amounted to us $ 88. 1 billion at the end of september, the third largest in the world. this is more than seven times hong kong dollar cash in circulation or over three times hk $ m1. 30. the currency board system has an automatic adjustment mechanism to maintain exchange rate stability. when there are outflows of funds from the hong kong dollar, the hong kong monetary authority ( hkma ) will sell us dollars to banks for hong kong dollar. on settlement day, the hkma will debit the clearing accounts of the banks for the necessary amounts of hong kong dollars in return for the us dollar that will be credited to the new york accounts of the same banks. since banks may have sold more hong kong dollars than they have

finally, i must emphasise that both the management and the board are strong in their resolve to take the bank of mauritius to greater heights in the days to come. if we are to achieve our objectives, we need sufficient autonomy to do so, built on a close working relationship with the government to ensure our polices and actions are complementary in our joint pursuit of economic and social development in this country. 2008 has been a year that will go down as a turning point in the history of global banking and finance. even, as the bank wishes a very happy and prosperous year to all our stakeholders, we must all be conscious of the trials and travails that lie ahead in 2009, a year that could prove still more turbulent as the global crisis may very well intensify further. in 2009, the bank needs to continue to be alert to the global financial and banking volatility and must be especially vigilant in protecting our interests and judiciously managing our reserves. no country has been immune to the crisis, but as light craft can in safe hands weather a storm, so this small, vulnerable and highly open economy of mauritius may be buffeted but will maintain course and shall not be sunk. the bank of mauritius will do all that is possible to ensure a safe passage through these difficult times in matters of banking and financial policy and practice. best wishes for 2009.