This document contains the key note by Jaime Caruana on conference on "Central bank balance sheets in Asia and the Pacific: the policy challenges ahead". It discusses the important subject of the central bank balance sheets. The balance sheet stocks are just as important as income flows. Indeed, one of the lessons of the recent crisis is that more attention must be paid to balance sheets than was the case before the crisis.

It outlines some observations about the special role that central bank balance sheets have played historically in ensuring monetary and financial stability. Then it outlines how policy responses to recent crises have transformed central bank balance sheets. Central banks have been ready to buy a wide range of financial assets on a large scale in order to further major macroeconomic and financial stability objectives. Because the scale and persistence of the world-wide expansion in central bank balance sheets is unprecedented, we need to pay special attention to possible medium-term risks.

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