Now, suppose, through a miracle, the money endowment of people doubles to 200 units, while the number of coconuts remains unchanged at 10. Then, the price of coconuts in terms of money rises to 20 units from the earlier 10 units. What has happened here is that when the amount of money doubled, while the production of coconuts had remained unchanged, the prices too have doubled. What would happen to the price level, if the number of coconuts too doubled along with the doubling of money? Then, 20 coconuts would be exchanged for 200 units of money. Hence, the price level would remain unchanged at 10 units of money per coconut. Now, suppose that the number of coconuts doubles to 20, while the amount of money remains at 100 units. In this case, the price level has to fall from 10 units of money to 5 units of money. Let’s consider one more possibility. Suppose that there has been a merciful hurricane and it destroys exactly a half of the original number of coconuts, leaving the balance half intact for use by people. Now, in this economy, there are only 5 coconuts against 100 units of money. It is not difficult to discern that the prices would rise to 20 units of money per coconut. What would happen if the amount of money too is raised to 200 units in this scenario? Then, the price of coconut would skyrocket to 40 units of money.
These projects are: •  a review of the standardised (credit and operational risk) approaches to capital adequacy, which need to be re-examined in light of calls for greater simplicity and comparability in the regulatory framework as well as the desire to reduce the reliance on credit rating agencies if possible; and  •  an examination of the need for a capital framework for interest rate risk in the banking book, particularly given the desire to limit arbitrage opportunities between the trading and banking books. These last two projects are still at an embryonic stage, so I cannot say too much about what they might entail at this point in time, but they will be the last pieces in what has essentially been a complete overhaul of the regulatory framework since the financial crisis. Monitoring and reinforcing implementation of Basel regulatory standards As I have already said, the establishment of the implementation monitoring programme has been a high priority for the Committee; it is critical to the successful delivery of the benefits of the agreed reforms. Starting from scratch at the beginning of 2012, a comprehensive assessment framework has been developed that is growing in its acceptance and credibility, and I am pleased to report that the Committee now has dedicated capacity in the area of implementation work. The implementation framework is being continuously strengthened through a lessonslearned process.