All considered, the pursuit of macro and financial stability in the context of an inflation target regime may call for some exceptional departure from a fully floating exchange rate and a highly integrated international financial market. This can take different forms, as they may require the use of non-interestrate policy, such as reserve requirements on bank deposits instead of the conventional interest rate policy; a temporary reduction of the degree of financial integration, through the use of some sort of capital controls; or it can allow some exchange rate intervention, through the accumulation of international reserves in order to avoid excessive exchange-rate appreciation. I will comment on each of these options next. Using alternative monetary policy instruments to deal with inflationary pressures, such as reserve requirements on bank deposits, may prevent the undesired credit growth associated with capital inflows without affecting interest rate differentials. This seems to be the case of Turkey, Peru, Brazil, China and India, which have used extensive reserve requirements to deal with inflationary pressures in the current scenario. Other alternative is imposing a levy on foreign exchange borrowing by banks, as the one implemented in South Korea. However, this road is more appropriate when inflationary pressures come from excessive bank credit related to capital inflows than in other cases. When the surge in inflows comes not only from  4  BIS central bankers’ speeches  the banking system, these measures may only create disintermediation and the allocation of excessive risk in other parts of the financial system.

One of these messages was our expectation that the cards industry in Europe will issue “chip-only” cards from 2012. But if the industry decides to retain the magnetic stripe on cards for practical reasons, we would ask that any data enabling the processing of magnetic stripe transactions should be removed. This should ensure that sensitive account information can no longer be copied. The current levels of fraud clearly show that something needs to be done urgently in this respect. The increasing level of card-not-present fraud carried out over the internet can be addressed by the introduction of secure payment protocols (e.g. 3D Secure or virtual cards). To encourage the use of such security measures, a liability shift – which has been used, for example, as an incentive for EMV migration – could be applied. BIS Review 159/2010  3  Clearly, SEPA requires a harmonised minimum level of security for retail payments to ensure transparency and a level playing field. In order to achieve this, we need to have more clarity about the security requirements as well as about the actors involved in setting these requirements. We have recently launched the idea to set up a Forum for Security Issues and have received a positive feedback from banks. Such a forum would monitor market developments. In addition it could enable the relevant authorities, including banking supervisors and central banks, to align their expectations on security. The Eurosystem is currently investigating what could be the precise mandate and composition of such a forum.