before we try to stomach the bad news. our net international reserves have increased by a full third over the last three years, rising from rs 75 billion in january 2007 and topping rs 100 billion for the first time in november 2009. rest assured that we took steps to reduce our exposure to the dollar, the euro and the pound sterling, which together accounted for over 97 % of our portfolio in 2007. now, this has fallen to a more prudent 70 %, with our dollar and euro exposures having been reduced to 35 % and 25 %, respectively, from 40 and 41 % previously. our sdr allocation and gold holdings make up nearly 14 % of the portfolio, the balance being commodity currencies like the canadian, australian and new zealand dollars and the japanese yen. the nominal value of that gold we controversially purchased from the imf in november 2009, has risen by some rs 570 million, perhaps the best investment the bank has ever made in its entire history ; no wonder there is international talk about moving back to gold as a reference value, if no longer as actual backing, for paper currencies. the platinum coin we launched last year has increased 16 % in terms of platinum value. the gold coin we launched here in 2007 did even better, its value increasing by 42 %. that “ barbarous relic of a bygone age ”, as keynes dubbed gold, has not lost its shine over the centuries and may still be pressed into monetary service! so in this initiative we are ahead of the game, brickbats notwithstanding. our much - maligned exchange rate policy is another success story, to be celebrated, not decried. the meri exchange rate index has been fairly stable, indicating that our policy has minimized volatility and maintained the stability of the exchange rate of the rupee. had the central bank reacted, as many pressed us to do, and followed the euro in its wild gyrations, the economy would have suffered untold damage, with the poorest and most vulnerable strata of our countrymen taking the worst hits. in the course of the year, the bank ventured boldly in two complementary directions. we spent more than rs 11 billion to purchase the equivalent of us $ 375 million in foreign currency, partly in an attempt to contain rupee appreciation. we sold less than half of this, only us $ 156 million, to the state trading corporation at favourable rates in a parallel attempt to finance food and fuel imports and thus

of the crisis was a credit crunch arising from a lack of liquidity in the system. the problem here is an excess of liquidity, coexisting back - to - back with a credit crunch affecting some sectors. there, governments have overborrowed, or are doing quantitative easing, making financial markets and bondholders nervous and demanding higher returns and driving up yields. here, government is not rolling over all its domestic maturing debt, making banks awash with cash, and driving down yields on treasuries. that is why solutions applicable there cannot and should not be transposed here. we have been cutting back the excess liquidity in the system. we did not panic when it hit nearly rs 8 billion in mid - august this year when it equated to over 43 % of the currency in circulation. this excess was partly driven by fdi inflows which we were forced to mop up in an attempt at partial sterilisation. we issued a rapidly - escalating volume of bank paper during the year. in addition to short - term bills of maturity of up to a year, we found ourselves forced to issue notes of longer - term maturities, ranging from two to four years, to pick up the slack created by net redemption of government paper. the amount of bank of mauritius paper outstanding now totals rs 7. 3 billion, comprising bills of rs 3. 8 billion and notes of rs 3. 5 billion. in spite of all these efforts, we still had an excess liquidity of nearly rs 4. 2 billion at the close of business yesterday. now, it is quite possible, indeed very likely, that the demand for loanable funds has fallen off as a result of the knock - on effects of the global economic crisis and the timid recovery. there is a famous law in economics to the effect that supply creates its own demand. they say a certain monsieur say said it. that law has been suspended, it seems. whether in the vaults of commercial banks or at the central bank, excess liquidity is idle money. it is equivalent to keeping money under the mattress and not using it to put people to work and help business to thrive. if we take that together with the low net non - performing loan levels we have achieved, currently standing at just above 2 %, and the profits of our banks, now running at rs 50 million per day, we have some difficulty in understanding why the flow of credit to the export manufacturing sector has