For example, there is currently substantial agreement, both among academics and monetary authorities, on the need to provide central banks with sufficient formal and effective institutional independence, the superiority of interest-rate operational targets over quantitative instruments, and the pursuit of low inflation as the main objective for monetary policy. Both trends - towards deeper and more integrated financial markets, at one end, and towards monetary policies clearly determined to deliver price stability, at the other - are important factors behind the sound macroeconomic performance recorded practically worldwide over the last decade. Notwithstanding this positive view on the recent past, central banks must deploy their best efforts improving their monetary policy and regulatory and supervisory arrangements - to preserve and consolidate the attainments I mentioned, since various significant risks and challenges lie ahead. As stressed by Frederic Mishkin, the final success of the processes of financial liberalisation and globalisation in developing economies hinges crucially on the ability of both policymakers and the private sector to properly respond to a rapidly changing environment. No doubt, the spirit of this proposition applies likewise to developed countries. BIS Review 53/2006  1  An increasingly liberalised and globalised financial system necessitates a reconsideration of some key inputs in our current monetary strategies. The greater relevance of markets and their evolving nature requires an ongoing assessment of the different monetary policy transmission mechanisms. This area, while critical to successful monetary policy decision-making, still remains shrouded in considerable uncertainty.

The Eurosystem is well suited to take into account the existing synergies. The Treaty itself establishes price stability as a primary objective while at the same time calling on the European System of Central Banks to contribute to the smooth conduct of prudential policies and the proper operation of payment systems. Nonetheless, central bank policies must deal with a heterogeneous economic scenario where national economies retain distinctive features both in terms of exposure to specific shocks and as a  BIS Review 53/2006  3  consequence of the different functioning of domestic policies and allocation mechanisms. Moreover, while markets are increasingly integrated there are still frictions impeding sufficiently flexible flows of products, capital and labour. Even in the financial services area, and although progress in developing the single market is already evident, some transactions involving agents in several euro zone countries are still penalised in comparison with purely domestic operations. Against this background, the Eurosystem has had to face the challenges posed by economic heterogeneity and imperfect integration in two ways. Firstly, by complementing the monitoring of eurowide aggregate variables with the analysis of relevant national developments in order to identify the policy that best helps ensure price stability in the euro area as a whole. Secondly, by promoting a better integration of markets, particularly financial markets, in the euro area. Regarding this latter issue, the role of payment systems is crucial.