, there appears to be a general consensus that business cycles have converged to some extent over the past decade or two. as a central banker, i am naturally interested in inflation differentials, and these are certainly lower now than they were 10 or 20 years ago. for example, inflation rates among current euro area members ranged from 21 % in italy to 5 % in germany in the last quarter of 1980. by the second quarter of this year the range was only 3½ percentage points. naturally, divergences do remain, and these reflect a number of factors. some divergence is due to a process of convergence as countries catch up to euro area averages, the well - known balassa - samuelson effect. this effect explains how productivity growth during a catch - up process can result in higher inflation without undermining competitiveness. country - specific policies, including fiscal policy and regulation, also result in divergences. finally, countries have different industrial or sectoral concentrations. differences in the economic performance of various sectors will therefore be reflected in cross - country divergences. these factors are not going to disappear immediately, but may diminish as price and income levels converge and through continued deepening of the internal market. however, we cannot be sure how rapidly they will diminish, nor can we be certain what level of divergence will be normal in the long run. in addition, the process of convergence will not necessarily be continuous. for example, inflation differentials have widened a little over the last year or two, although they remain much smaller than they were a decade ago. for small areas within a monetary union, a common monetary policy does have some specific implications. small countries have little influence on the euro area inflation rate, which is a weighted average of national inflation rates. if inflation rates in those small countries diverge from the euro area average, that has relatively little impact on the overall monetary policy stance for the euro area. consequently, it is possible for smaller countries to temporarily have growth rates and inflation rates that differ from those that would result from a national monetary policy aimed at maintaining price stability at the country level. large countries could also be in this position. if inflation is well above the euro area average in one country, but below it in another, monetary policy may not contribute to narrowing the divergences. where such divergences are not the result of catching - up processes, national economic cycles could potentially become more pronounced. some euro area countries are arguably in

although the uae is well developed when it comes to financial inclusion, there are still unbanked sectors of the society and under banked geographical areas within the uae. therefore, we need to provide the infrastructure necessary for banks and other financial institutions to provide their services including credit, to all sectors of the society and in all bis central bankers ’ speeches geographical regions within the uae. this will be achieved, sometimes, through using electronic systems. 2 ) sme financing : we believe that sme financing will become more difficult when new global regulations are implemented, therefore, we have to find ways and means to improve sme financing outside the banking system. at the moment, the uae is looking at experiences of other jurisdictions and recently we have at a gcc banking conference which was held at the beginning of this month, discussed the experience of korea. we are also looking at the experiences of italy and malaysia. we believe that sme financing is very important for job creation. our region in particular will need to create more jobs in the future, due to relatively young population. 3 ) domestic debt market : the development of a domestic debt market is, in my view, of a national priority. companies, particularly large private companies and gres, need an alternative to bank lending. it is a more reliable source of funding and it is less costly for large corporations. banks also would need instruments of the domestic debt market to fulfill the requirements of basel 3 regarding liquidity ratios. as local debt markets are at an infancy stage in many countries in the region, this would make it difficult for banks to hold highquality liquid debt instruments as “ preemptive ” liquidity buffers against early signs of stress as required by basel 3. therefore, it is necessary for the uae now to expedite the issuance of the public debt law and to set up the needed market infrastructure, as a first step on the way to a vibrant domestic debt market. excellencies ladies & gentlemen with this i come to the end of my speech, but before i close, i would like to thank the basel committee on banking supervision ( bcbs ), the fsi of bis and the amf, for holding this important high level meeting here in abu dhabi, uae. i wish you all a successful meeting. thank you for your attention … bis central bankers ’ speeches