very insightful article in the bundesbank ’ s staff magazine about “ money in the second part of goethe ’ s faust ”. in the mid - 1980s, while teaching in sankt gallen, professor hans christoph binswanger – who i am pleased to say is also here today – took a similar line and brought out a book entitled “ money and magic : a critique of the modern economy in the light of goethe ’ s faust ”. binswanger ’ s thesis is that goethe was portraying the modern economy with its creation of paper money as a continuation of alchemy by other means. while traditional alchemists attempted to turn lead into gold, in the modern economy, paper was made into money. indeed, the fact that central banks can create money out of thin air, so to speak, is something that many observers are likely to find surprising and strange, perhaps mystical and dreamlike, too – or even nightmarish. 4. the responsibilities of an independent central bank if central banks can potentially create an unlimited amount of money out of thin air, how can we ensure that money remains sufficiently scarce to preserve its value? does this ability to create money more or less at will not create the temptation to take advantage of this instrument to create additional leeway short term, even at the risk of highly probable long - term damage? yes, this temptation certainly does exist, and many in monetary history have succumbed to it. taking a look back in time, this was often the reason for establishing a central bank : to provide those in power with free access to seemingly unlimited financial resources. however, such government interference in central banking, combined with the government ’ s large demand for funding, often led to a strong expansion in the volume of money in circulation, causing it to lose value through inflation. in light of this experience, central banks were subsequently established as independent institutions, with the mandate to safeguard the value of money, in order to explicitly keep the government from co - opting monetary policy. bis central bankers ’ speeches the independence of central banks is an extraordinary privilege – it is, however, not an end in itself. instead, its primary purpose is to use its credibility to ensure that monetary policy can focus unhindered on preserving the value of money. independent monetary policy combined with policymakers with a well - functioning, stability - oriented compass are a necessary – but not a sufficient – condition for preserving the purchasing power of money as well as public confidence in it. of course

g20, the financial stability board ( fsb ) and various standard setting bodies – including but not limited to strengthening banks ’ capital and liquidity requirements, reducing moral hazard posed by systemically important financial institutions, and reforming the otc derivatives markets. recently, the fsb decided to set up regional consultative groups, including one for asia, to bring together central banks, finance ministries and regulators in different regions. these groups are expected to serve as a platform for us to discuss and cooperate on issues of interest to regional financial stability, and to reflect the region ’ s collective views to the fsb in the international standard setting process. 9. the second area is enhancing the global and regional financial safety nets. we welcome the recent significant augmentation of imf ’ s resources and lending facilities. these enhancements will allow the imf to respond more effectively and speedily to member countries in need. regionally, the establishment of the chiang mai initiative multilateralisation ( cmim ) further enhances the regional capacity to cope with capital flows and safeguard financial stability of the region. the hkma fully supports this important regional initiative, and indeed we have played an active role in its development and participated directly in the arrangement. 10. the third area is enhancing the capacity of regional capital markets to absorb capital inflows and channel them to productive uses. in this regard, the hkma took the lead in developing the asian bond funds ( abf ) under the aegis of the executives ’ meeting of east asia pacific central banks ( emeap ). the abf, as a pioneer product, aimed to provide a convenient low - cost local - currency instrument for investment, and at the same time help identify and remove the impediments to bond market development. in parallel, with the strong support from the adb, asean + 3 members have undertaken a range of projects under the asian bond markets initiative to promote the development of the local currency bond markets. notwithstanding these regional efforts, we still have a long way to go in developing a regional bond market that is broad and deep enough to channel the region ’ s abundant savings to meet its huge investment needs. continued national and regional efforts in this regard are much needed. emerging asia includes china, hong kong, india, indonesia, korea, malaysia, the philippines, singapore and thailand. bis central bankers ’ speeches 11. at the domestic level, there has been growing recognition that there is no one - sizefits - all approach to capital flows