the domestic money market arising from its monetary policy implementation function. finally, the return objective has become increasingly important in recent years as reserve levels have grown, and therefore there is a need to enhance returns within an acceptable and prudent risk tolerance so as to help defray the costs of accumulating and holding reserves. the bank benchmarked and just recently completed a review of its investment policy ( ip ) and also reviewed the strategic asset allocation ( saa ), to take into account the current lowyielding environment and expectations of future monetary policy actions by major central banks. the review and benchmarking of the ip earlier this year proved to be very useful with much of the feedback from various central banks, the world bank and the bank for international settlements ( bis ) taken on board. a number of refinements were made to the ip, which largely related to improving on already well - structured governance arrangements. in order to meet the three objectives of capital preservation ; liquidity and return, the bank structured the reserves into various tranches. prior to the rollout of the most recent saa, the bank had divided the reserves into 3 tranches, being the liquidity, buffer and investment tranches. however, the rollout of the new saa saw the tranches cut down to two instead, namely the liquidity and investment tranches. this change was really just a simplification of the structure and necessitated by the various scenarios informing assumptions made using the jean - rancierre model and the amount of reserves which needed to be held for liquidity purposes. in essence, the structuring remains very similar, as the liquidity tranche is divided into two sub - tranches, namely the buffer tranche and working capital tranche, the latter being held largely for liquidity purposes. the bank has employed the jean - ranciere model in determining the appropriate size of each tranche, and within this, has made various assumptions regarding the probability of a sudden stop in capital flows, which then dictated the amount of reserves which should be held in the liquidity tranche. in order to determine the appropriate risk profile of the portfolios located within each tranche, the bank uses a strategic asset allocation ( saa ), which it reviews roughly every 3 years or when market conditions necessitate a review. the purpose of the saa is to maximize returns for each tranche, while being subject to a very low probability of capital loss over a given investment

bank of malta, have embarked in comprehensive euro information campaigns on the euro banknotes and coins in the two countries and will take all measures necessary to ensure a successful transition from the cyprus and maltese pounds to the euro. thankfully, we have by now accumulated certain experience with such changeover processes. the euro changeover that took place early this year in slovenia was a great success. within a short period of time, slovenians had completely accepted the new currency and integrated it in their daily life. i am confident that the cypriots and the maltese will also benefit from the undeniable economic advantages of belonging to the single european currency area. as part of our experiences with previous changeovers to the euro, we know that we have to monitor carefully that prices are converted properly, and that the changeover should not be used as an occasion to raise prices in an unfounded and inordinate manner. it is therefore encouraging to see the positive outcome of several “ price watching ” movements in cyprus and malta, be they grass - roots or institutionally organised. and i have no doubt that the cypriots and maltese will be vigilant consumers. entering monetary union is a historic undertaking. both countries have taken an irreversible step towards deeper economic integration within the euro area ; they are now part of what can be called a “ community with a common destiny ”, or – it is maybe better to use the german term – a “ schicksalsgemeinschaft ”. the stability and dynamism of the economies of cyprus and malta, and the welfare of their people, will be of a direct and immediate importance to all of us who share the single currency. similarly, the growth and prosperity of the euro area as a whole will be a matter of significant interest also for the people of cyprus and malta. just like the members of a family, all members of the euro area should discuss together and take the best course of action, for the benefit of each and of all. let me conclude by congratulating, once again, cyprus and malta for this great achievement, to become part of the euro area and to adopt “ the euro. our money. ” κυπρο, καλωσορισες merħba, malta! thank you very much.