no inclination on the part of the fed to move to a less expansionary stance of monetary policy. the united states makes its monetary policy for its own domestic needs : no - one could expect it ( or any other country ) to do otherwise. the problem is that a number of other countries, which fix their exchange rates to the us dollar, effectively also match us monetary policy. another group of countries, even though they have no desire to match us monetary policy, are nevertheless limited in the extent to which they can depart from it by exchange rate considerations. the net effect of all this is that, to some extent, the united states sets the world ’ s monetary policy - a partial return to the situation that prevailed under the bretton woods system. this may or may not be a bad thing, depending on where you view it from. for some parts of the world, where economic activity is subdued and domestic inflationary pressures non - existent, an extremely low interest rate structure like that in the united states may be suitable. but for other parts of the world, it could lead to the build - up of imbalances. for the world as a whole, we do not yet know whether the maintenance of an extremely low average interest rate is helpful or harmful to its longer - term interests. on the one hand, the after - effects of the bursting of asset price bubbles are still exerting downward pressure on goods and services prices in the united states and europe, and in japan ( where it has been going on for a decade or more ). more importantly, the downward pressure on goods prices - particularly internationally traded manufactured goods prices - caused by the massive expansion in chinese capacity continues apace. this is a structural phenomenon which has been with us for some time now and can be expected to remain important for the foreseeable future, particularly with india joining in. it is what economists call a positive supply shock, and among many of its effects, the one most relevant to the current discussion is that it has made the maintenance of low cpi inflation easier than it formerly was. while these influences are important, we should not forget that the international business cycle is also alive and well, and can be expected to have an influence as we go forward. good economic growth and expansionary policies are now starting to make their presence felt in a range of international markets. commodity prices ( as shown in the crb index, graph 4 ) have risen over the past two years and are now at their highest level

we work to the same standards in the region, our systems are all evolving, and we have to admit that this evolution is happening at different pace in our respective markets and to address differing risks. and therefore the priorities in different markets will understandably differ, thereby making arriving at a consistent view on the question of “ effectiveness ” extremely challenging. i would also note that the financial action task force will do that job for hong kong later this year when they conduct the mutual evaluation exercise, while in roughly the same period, they and the imf also assess other jurisdictions in the region. 9. despite the fact that i do not have all the answers to the “ effectiveness ” questions, i think that it may be helpful to talk about some of the issues that arise out of those questions and try to relate them to the agenda for the conference. i hope this would help you to start thinking about some of the complex issues that you would be debating throughout this conference. 10. hong kong, as an international financial centre with a highly externally - oriented economy, does face high ml / tf risks. our competitive advantages here – namely, free flows of capital, people, goods and information ; well - established legal system ; sophisticated market infrastructure ; and advanced professional services – also make our market attractive for criminals seeking to hide or move funds or evade financial sanctions. with such a risk profile, hong kong has a key role in that fight against attempts to abuse our systems, along with our regional partners who share many of these characteristics and fund flows. so this conference – focusing on the regional response - is timely and very relevant. 11. over the years, the regulatory landscape has changed. since we started this line of work in the 90 ’ s, we have seen a steady increase in the regulatory requirements and expectations we place on our financial institutions to combat ml / tf. more recently, the number of sectors and institutions which come within the regulatory remit also continues to grow. these are far from simple requirements however you look at them, particularly given the risk - based approach, a view which is supported by the experience of many financial institutions who have struggled getting it right. 12. the world of banking and finance has also changed significantly in the same period we have been applying these requirements. for example, technology has created new and significant opportunities for the development of the global economy, which has been good news for financial centres such as hong kong. but there have also been downsides and one of these has been