Correlation was not expected to be high between investments in, for example, Japanese inflation-indexed government bonds, bonds issued by international organisations such as the European Investment Bank, European covered bonds and US mortgage-backed bonds. These experiences and the abrupt turnaround in market liquidity suggest that active management of the fixed income portfolio should be limited and measured on the basis of a number of criteria, as laid down by Norges Bank’s Executive Board. The Fund currently has extensive holdings of bonds that are difficult to trade in today’s market. Realised losses related to these investments have, as mentioned above, been limited. The flipside of large book losses is that this portfolio has a high return, reflecting not only the increase in credit risk but also high liquidity premiums and fears and uncertainty in the market. The return, measured as the difference in the effective interest rate between the actual portfolio and the benchmark portfolio, is now close to two percentage points. History has seen a number of deep financial crises, and market conditions will return to normal in time. The final results of the management of the Fund’s fixed income portfolio since the beginning of the financial crisis cannot be deduced from the quarterly results while the crisis is at its  BIS Review 53/2009  3  most intensive. Values are not lost as long as borrowers fulfil their obligations. The Fund is prepared to retain ownership of a large volume of bond holdings until they mature in a few years.
Christian Noyer: The challenges of financial liberalisation for emerging market economies Speech by Mr Christian Noyer, Governor of the Bank of France, to RBI staff, Reserve Bank of India, Central Office, Mumbai, 14 May 2007. *  *  *  I am very pleased and honoured to be here and I want to thank warmly my good friend, Dr Reddy, for having invited me to address the staff of the Reserve Bank of India (RBI). The BIS recently announced that the RBI Vice-Governor, Mr Rakesh Mohan, will chair a new working group on "Capital flows and emerging economies". I would like to congratulate him for accepting to explore this complex issue. I will offer some views on a related topic: "the challenges of financial liberalisation for Emerging Market Economies (EMEs)". Financial liberalisation is defined here as the dismantling of internal and external controls on capital flows. It exhibits many positive aspects, for instance: •  it contributes to improving global capital allocation efficiency, be it at the national or at the international level;  •  it fosters competition on capital markets and consequently reduces the cost of capital as well as it brings about enhanced risk management;  •  it also increases the role of market discipline for firm managers and policy makers since it raises the costs of poor governance.