Ladies and Gentlemen
It
is indeed a privilege for me to be made the first honorary member of the
Financial Markets Association of Mauritius. Thank you, President Sidambaram and
the Committee for this kind gesture.
The Forex Association of
Mauritius, established in the mid-1990s, was but the inevitable forerunner to
the recently constituted Financial Markets Association of Mauritius. In its
very first attempt, the Association has been successful in becoming a member of
the Association Cambiste Internationale or better known by its acronym, ACI, in
May 2001. I am given to understand that
the Mauritian delegation was highly commended by the ruling body of the ACI for
the high quality of its presentation in the quest for membership. Let me also congratulate the Committee on
this laudable achievement.
Membership of ACI is a
vitally important step for the Mauritian Association in its very short
life. The emphasis of the Association
on training and education of its members is indeed a visionary move. This will enable members to keep abreast of
developments in the world’s foreign exchange and money markets which have grown
considerably both in size and complexity. I am confident that members of the Association
will eventually contribute in a highly professional way to the sound
development of the domestic financial markets.
As
you are aware the Bank of Mauritius has steered its policy action in recent
years towards a new direction with a medium and long-term objective of
promoting micro-economic and macro-economic efficiency. I have to say that the
new monetary policy framework has set conditions for efficient and effective
liquidity management in the banking system – a corollary of which is the fact
that our inter-bank money market is for quite some time much more active than
before. As I have said it elsewhere, the more active financial markets are the
better are they for the efficient conduct of monetary policy and the more
efficiently banks can manage their day-to-day liquidity. Indeed, we, at the
Bank of Mauritius, are pleased to note that commercial banks are now managing
their liquidity in a much more efficient manner than before. Overnight surplus balances maintained by
banks have fallen dramatically, which is good news, as this efficiency cuts
down on unnecessary costs.
Although
the record of the past years shows that substantial progress has been made,
considerable challenges still lie ahead.
One area that has been of concern to the Bank of Mauritius has been the
lack of activity on the secondary market for Treasury Bills and other
securities. In addressing this issue,
the Bank of Mauritius recently produced a report proposing the establishment of
a primary dealer system in Mauritius.
The report outlined eligibility criteria for primary dealers and also a
set of privileges and benefits which primary dealers would enjoy in exchange
for obligations to be discharged by them as market-makers in the secondary
market. I am pleased to say that the
Chief Executives of commercial banks agreed to the framework for a primary
dealership system in May 2001. Work is
currently being pursued in consultation with the banks and other market
participants with a view to finalising the ground rules. However, skills in primary dealing area are
palpably lacking. The Mauritius
Association will have a decisive role in this area. The Bank of Mauritius will
fully support any initiative taken by the Association in this area.
May
I share with you some constraints that have been identified as hindering the development
of the secondary market in Mauritius.
The BOM findings suggest that many investors in Government securities,
both institutional and individual, tend to adopt a passive approach and
generally hold securities until maturity rather than trade on opportunity. As a result, activity in the secondary
market is practically non-existent.
Also many institutional and parastatal investors appear to be lumbered
with cumbersome decision making procedures, especially in situations where
senior management have not delegated appropriate dealing authorities to their
treasury staff. I urge these
institutions and parastatals to modernise their investment philosophies and
adopt a more proactive and sophisticated approach to their investment
portfolios. The Mauritian Financial
Markets Association could play a useful role in this area by inculcating the
need for a more positive investment approach by their clients, so as to deepen
secondary market activity.
The
Association in Mauritius was originally called the Forex Association and it now
behoves me to say a few words about the foreign exchange market. The conduct of
exchange rate policy can be quite demanding, particularly when the currencies
of our major trading bloc are volatile in the international markets. Think of
the foreign exchange markets the world over, including Mauritius, with so many
players and forecasters. They remind you of the theological discussions about
the number of angels who can dance on the head of a single pin. The general
belief among economists is that, left to their own forces, foreign exchange
markets tend towards equilibrium. This is not what we observe today. Whether or
not financial markets have “Le droit a l’exces”, excesses in such markets are a
common feature. Financial markets have
intrinsic forces of unexpectedly turning into a wrecking ball. The domestic
foreign exchange market has in the recent past suffered the wrath of wrecking
ball. After having gone through a total eclipse, the domestic inter-bank
foreign exchange market is regaining its confidence. Self-imposed discipline
among players is a necessary condition for the orderly development of a foreign
exchange market that is still in a fledgling state.
In this respect I appreciate
the collective responsibility of the foreign exchange dealers in ensuring that
the local market operates efficiently in a stable environment. The behaviour of
players in financial markets has been well analyzed in game theory as
illustrated in the so-called prisoners’ dilemma. For an individual it pays to
betray. But for the system as a whole it pays to adopt a cooperative behaviour.
An overly aggressive approach for short-term gain by any player in a thin
market, which is subject to seasonal flows, can prove to be disruptive and
unhelpful. Rocking the boat
unnecessarily in choppy waters is tantamount to the practice of hara-kiri! I do
trust the competence of the members of the Financial Markets Association in
their endeavour to develop the muscles of the financial markets in Mauritius
but without flexing their own muscles to rock the boat.
The
forex or financial markets associations the world over affiliated to ACI have
undergone a major change in role from that which prevailed about 20 years
ago. In the earlier days the
associations or clubs were perceived as centres for after hours drinking after
a hard day’s trading. This image has
now changed and the associations are now working more closely with the
authorities in enhancing and developing local financial markets, while of
course retaining the social dimension!
This is no more evident than here in Mauritius. I am pleased to report that the Mauritius
Financial Markets Committee which comprises the heads of treasuries of the ten
commercial banks with the Bank of Mauritius in the chair has met on 18
occasions since its establishment in March 2000. May I seize this opportunity to extend my appreciation to the
members of the Committee for the cooperation and positive approach to the many
issues discussed by the Committee. This Committee has led to the enhanced
functioning of the domestic markets through a better rapport between the Bank
of Mauritius and the market participants.
It
is my earnest desire that this partnership between the Bank and the markets be
further strengthened to best serve the economic interests of the country.
I
wish the Financial Markets Association the very best of success in its future
endeavours.
May
I once again express my appreciation for honouring the Bank of Mauritius by
conferring the honorary membership of the Association upon me.
Thank you.