markets and a rules - based international system. it has been the breeding ground for much of the progress in technology. and it has been a safe place for people to invest and an important source of financial capital for other countries. it is in our interests that the united states continues to play this important role. a retreat would make our lives more complicated. another important influence on the next chapter is how things play out in china. while growth in china is trending lower, the share of global output produced in china will continue to rise, as per capita incomes converge towards those in the more advanced economies ( graph 6 ). as this convergence takes place, the structure of the chinese economy will change and so too will china ’ s economic relationship with australia. exports of resources will continue to be an important part of that relationship, but increasingly trade in services and other high value - added activities, including food, will become more important. notwithstanding this, there are risks on the horizon, with the chinese economy going through some difficult adjustments. one of these is the switch from a growth model based on industrial expansion to one based more on services. another is managing an increasingly large and complex financial system. australia has a strong interest in china successfully managing these challenges. 7 / 11 bis central bankers'speeches another shift in the global economy that could shape the next chapter is the growth of other economies in asia. developments in india and indonesia bear especially close watching. both of these countries, especially india, have very large populations, and per capita incomes are still quite low. in time, the effects of economic progress in these countries and others in the region could be expected to have a substantial effect on the australian economy, just as the development of china has. normalisation of monetary conditions a second likely plot line of the next chapter is a return to more normal monetary conditions globally. since the financial crisis we have been through an extraordinary period in monetary history. interest rates have been very low and even negative in some countries. central banks have greatly expanded their balance sheets in order to buy assets from the private sector ( graph 7 ). this period of monetary expansion is now drawing to a close. 8 / 11 bis central bankers'speeches some normalisation of monetary conditions globally should be seen as a positive development, although it does carry risks. it is a sign that economic growth in the advanced economies has become self - sustaining, rather than just being dependent on monetary stimulus. it would also lift the return to many savers who have

. but overall, i remain optimistic about how this next chapter might unfold. while we have our challenges, some of which i have talked about, we also have some advantages. we have a strong institutional and policy framework, a skilled, growing and diverse population and a wealth of mineral and agricultural resources. we have strong links to asia, the fastest growing part of the global economy. we also have a flexible economy with a demonstrated capacity to adjust to a changing world. these factors should give us confidence about our future. but we can ’ t rest on this and there are a number of significant risks. the world is a competitive place and the global economy is continuing to go through some challenging adjustments. if we are to do well in this world, we need to keep investing in both physical and human capital. we also need to keep investing in policy reform. finally, i have said relatively little about monetary policy today. this is partly because there are other forces that are likely to be more important in shaping the next chapter of the australian economy. monetary policy has an important role to play in supporting the economy as it goes through the current period of adjustment. it can also help stabilise the economy when it is hit by future shocks. monetary policy can make for a more predictable investment climate by keeping inflation low and stable. having a competent, analytical, transparent and independent central bank can also be a source of confidence in the country. but beyond these effects, monetary policy has little influence on the economy ’ s potential growth rate. over recent times, the reserve bank board has not sought to overly fine - tune things. we have provided support and allowed time for the economy to adjust to the new circumstances. in its decisions, the board has been careful to balance the benefit of providing this support with the risks that can come from rising household debt. as things currently stand, we look to be on course to make further progress in reducing unemployment and moving towards the midpoint of the medium - term inflation target. this would be a good outcome. thank you for listening and i look forward to answering your questions. 11 / 11 bis central bankers'speeches