at a micro level. in the midst of a crisis, a central bank faces growing demand for introducing unconventional policy measures, which involve more or less quasifiscal policy elements. since a central bank generally thinks that such measures need to be decided and implemented by government in democratic society, a central bank falls into a difficult position, when decisions by government are just postponed. the border between pure monetary policy and quasi - fiscal policy sometimes becomes ambiguous. looking back at the experiences of various countries since the 1990s, when their central bank law had clauses for making some quasi - fiscal policy measures possible, they decided to carry out such measures after careful consideration. once a crisis was overcome, with the help of such unconventional policy measures, central banks were criticized for violating the fundamental rule in democratic society. as a result, such a situation is likely to undermine credibility for central banks, and thus affect their policy performance. iv. tasks for central banks as i discussed so far, central banks face new and difficult challenges at the moment. with considering such difficult challenge, i will point out some tasks in addressing such difficult challenges. understanding of a primary mandate for a central bank the first is the understanding of a primary mandate for a central bank. without social understanding on that point, central bank independence and, eventually, central bank credibility itself are likely to be undermined. i think that a primary mandate for a central bank should be to achieve a stable financial environment, that is, a financial environment that is consistent with, and contributes to, sustainable economic growth. price stability is certainly one important element in achieving a stable financial environment. that is, however, not the sole factor. when a central bank feels constrained by short - term developments too much, that is more likely to amplify macroeconomic fluctuations. after all, deposit money, which has a major share in broad money, is created as a product of maturity mismatches and leverage of private financial institutions. a central bank needs to adequately monitor the financial environment, including such behavior of financial institutions. macroprudential perspectives, recently reemphasized in light of the current global financial crisis, should be understood as examining the interactions between the real and financial sides of the economy, considering the behavior of private financial institutions. such an analysis is an essential task for a central bank, although it is a typical example of “ easier said than done. ” in addition, macroprudential analyses and perspectives are crucially important in conducting monetary policy as well as

bear the risks. will they be such that regulators do not need to regulate them? will financial regulators even need to know where the risks are distributed? one view is that as long as the participants in this market are large institutional investors, or high net worth individuals, they will need no protection. let the risks be distributed among those who wish to take such risk, and let it be distributed according to their capacity as determined by the market itself. hence, there is no need for any safety net like the one that is implicitly embedded in the lender of last resort role of central banks. what will be important in such markets is the availability of adequate market liquidity at all times for them to operate efficiently, enabling market participants to take and liquidate positions as necessary. the job for regulators would then be to ensure that there is adequate depth in the markets, that clearing and settlement systems are efficient and safe, that there are no dominant market players who can move markets, and that the players are themselves large and sophisticated. in times of market stress, the only issue would be the availability of adequate liquidity. given that the extraordinary growth of credit and other financial derivatives is still a relatively new phenomenon, and that this has happened in the context of accommodative monetary policies in g3 countries in recent years, it is too early to assess how such markets will work in times of stress and what the overall regulatory approach should then be. one positive side of this assessment is that, unlike the 1980s and 1990s, when financial crises were frequent in developing and developed countries alike, the past decade has been remarkably free of such crises, worldwide. high oil prices, large business failures, large stock market fluctuations that have been witnessed in this period have not resulted in financial crises, or disruptive effects on financial intermediaries. this is attributed to the wider dispersion of risk by some, whereas others point to the overall benign macroeconomic and healthy global growth conditions that have prevailed over this period. what is my take on these international developments and their implications for india? i don't have a clear answer. we need to embrace these financial developments in such a way that we continue to ensure financial stability, and that we enable domestic market participants, both financial and nonfinancial, to increasingly deal with the kind of risks that are emerging with greater market liberalization both at home and abroad. as a monetary authority and financial sector regulator, we will need to enhance our own risk management capacity