at < http : / / www. financialstabilityboard. org / wp - content / uploads / fx - bis central bankers ’ speeches orders. this recommendation was designed to address potential conflicts of interest arising from managing customer flow. a sizeable number of banks have implemented this recommendation by shifting the execution of fixing orders from the spot voice fx trading desk to electronic trading desks that execute them with algorithms. as a result, the share of fixing orders executed by algorithm has increased substantially, as we document in the progress report. there is also considerably enhanced internal scrutiny from senior management around fixing transactions. some firms have physically separated their fixing desk from other desks. this segregation of trading functions has involved some cost. other participants regarded the cost of implementing this recommendation as being too high, given the size of their business, and have not implemented it to date. others have decided to cease offering this service directly, in some cases offering customers a portal to other fixing services instead. again, i would like to emphasise that the intention of our recommendations was that it was to apply to all participants, with appropriate consideration to the size and structure of the market. in the case of smaller, less actively traded currencies, separation of business is clearly more complicated than for large actively traded currencies, but in these cases participants should still be able to demonstrate to their customers that appropriate processes are in place, in keeping with the fundamental motivation of the recommendation to reduce the scope for benchmark manipulation. in terms of market conduct, we made a number of recommendations around appropriate sharing of information, including around trading positions ( beyond that necessary for a transaction ) and particularly customer information. these were picked up in a statement of shared global principles that was published following the global fxc meeting in tokyo earlier this year. 3 many market participants have reflected these principles in their internal policies and codes of conduct, as well as revised policies around benchmark execution consistent with our recommendations. fx code of conduct more broadly in terms of improving market conduct, in may this year, the bis governors commissioned a working group of the markets committee of the bis to facilitate the establishment of a single global code of conduct for the fx market and to come up with mechanisms to promote greater adherence to the code. 4 i am chairing this work, with simon potter of the new york fed leading the work on developing the code and chris salmon of the bank of england leading the adherence work. 5 our group comprises representatives of the central banks of

it, experience had shown “ that a monetary framework which gives monetary policymakers a free hand usually deems them capable of more than they should be regarded as being capable of doing ”. as an alternative, eucken championed a strictly rules - bound monetary policy. and this is also being given serious consideration, especially by those who feel that central bank independence has to be associated with a narrow interpretation of its mandate. the question of whether rules - based policy is preferable to a central bank independence which, when it comes to the crunch, cannot be achieved anyway, was one of the topics at the latest annual meeting of the american economic association in san diego bis central bankers ’ speeches it must be recognised that the aim of a stronger rules - based policy framework is to prevent the primary objective of monetary stability from being watered down. central banks use these rules to tie their own hands in order to avoid being co - opted by fiscal policy. the price central banks have to pay for this, however, is that monetary policy also surrenders its flexibility. and it is precisely the decisive contribution made by central banks to stabilisation at the height of the crisis in the autumn and winter of 2008 which showed, in my opinion, just how important and useful such flexibility can be if it is firmly anchored in a clear commitment to the primary objective of price stability. however, the risks of such a policy are likewise becoming increasingly apparent. yet it is not only the benefits of independent central banks which are being questioned. on the heels of the crisis, changes to the monetary policy framework are being proposed which are designed to give monetary policy more policy options in times of crisis. quite some time ago, some – including imf chief economist olivier blanchard – suggested that central banks should set higher inflation targets. now the talk is of switching to nominal income targets. the common idea behind price - level targeting or nominal gdp targets is that, following a period of low inflation or weak growth, monetary policy tolerates higher inflation rates for a time before returning to the target path, thereby giving the economy an additional shot in the arm. i am sceptical of these proposals. a permanently higher inflation target creates permanently higher inflation costs ; although level targets avoid this by allowing higher inflation rates only temporarily, they entail problems of their own. moreover, changing the monetary policy framework during a crisis could dent confidence in central banks and raise suspicions of ulterior motives behind a change in strategy. in an article for the financial times, uk economist