guy debelle : capital flows and the australian dollar speech by mr guy debelle, assistant governor ( financial markets ) of the reserve bank of australia, to the financial services institute of australia, adelaide, 20 may 2014. * * * thanks to anthony rush, michelle wright and mark wyrzykowski in the preparation of this speech. the australian economy has been a net recipient of capital inflows from the rest of the world for almost all of its history. these net capital inflows – or the difference between foreign investment in australia and australian investment abroad – are the financial counterpart to australia ’ s current account deficit. put differently, investment in the australian economy has consistently exceeded domestic saving and this gap has been funded from offshore. as i, and others, have previously argued, australia ’ s current account deficit – and the associated capital inflows – is a good thing, not a bad thing. 1 cross - border capital flows allow for a more efficient allocation of global capital and can confer large benefits. in australia ’ s case, foreign investment has been attracted by the favourable risk - adjusted returns on offer here and has helped to expand our domestic productive capacity. most recently, this has been particularly evident in the role foreign investment has played in expanding the capacity of australia ’ s resources sector in order to meet growing demand for our bulk commodities – particularly from china. although net capital inflows have been a consistent feature of australia ’ s balance of payments, the composition of these capital inflows – and the gross inflows and outflows underlying them – has varied significantly over time. i talked about this a little while ago, 2 but it is worth revisiting today as there have been a few significant changes since then and some others are in prospect. so, today i will discuss some of these compositional changes in capital flows in more detail. i will also comment on some aspects of the relationship between these capital flows and the australian dollar, although this is not straightforward. at a basic level, net capital inflows can be thought of as representing the appetite of foreign investors to purchase australian dollar assets and the exchange rate is the price which adjusts so that they are willing to do this and maintain that exposure. i will conclude with a few observations on the outlook for australian capital flows. recent developments in australian capital flows in the decade prior to 2007, the net inflow of capital to the australian economy averaged around 5 per cent of gdp and peaked at almost 7

philip lowe : some tensions in financial regulation address by mr philip lowe, deputy governor of the reserve bank of australia, to the institute of global finance second conference on global financial stability and prosperity, sydney, 4 july 2013. * * * i would like to thank the institute of global finance for the invitation to speak today. it is a pleasure to be here. as i am sure you are all aware, over recent years regulators have looked into almost every corner of the global financial system. too often they found practices and behaviours that they judged generated unacceptable risks. in response, they have developed a very large and a very complex regulatory reform agenda. much of this agenda is now being implemented, and other pieces are still being negotiated. it is understandable why this reform is taking place. while financial intermediation can be a force of great good, it can also do much damage if not done well. indeed, the decisions that were made in the 2000s by some financial institutions ended up causing very real damage to the global economy. these decisions caused many people to lose their jobs and suffer a loss of their hard - earned wealth. there were also serious ethical failings by some of the highly paid staff in a number of these institutions. and a significant amount of taxpayer dollars had to be put at risk to help solve the problems. the societies in which this has occurred have been, and continue to be, rightly angry. i am sure that you have all heard variations of statements that run something like this : “ regulators need to make sure that these problems never occur again ” or “ not one cent of taxpayers ’ money should ever again be put at risk to support a financial institution ”. many of you in this room would, i suspect, agree with such sentiments. this afternoon i would like to reflect on the ideas behind both of these statements, which are clearly relevant to the theme of this conference, global financial stability and prosperity. in the world of finance, implementing what seems like simple and attractive ideas often turns out to be quite difficult. tensions emerge and trade - offs are inevitable. you touch one piece of the financial system and another piece moves, sometimes quite unexpectedly. this partly reflects the fact that the way in which savers and borrowers connect with one another is constantly evolving. moreover, views about the role of the public sector in the financial system are not static over time. all this means that it can be problematic to put into practice what seem like simple ideas. “ regulators should make