Another conclusion is that in an environment of good, swiftly and decisively-implemented policies that are accepted by the public, the euroization of the economy is not mandatory. Witness in this respect is the experience of the Czech Republic, which has brought inflation down early on, making lending in domestic currency as attractive as that in foreign currency. 5. Central bank’s objective: should financial stability be added? Before the outbreak of the global financial crisis, the conventional lines of thought advocated the idea that markets do self-correct always. The overconfidence in the infallibility of the invisible hand of the market generated a widespread belief that ample interventions by the authorities were not warranted in order to contain economic and financial imbalances at an early stage. Moreover, there was a prevailing view in the academic world that inflation was the main culprit for financial instability. By way of consequence, safeguarding price stability was looked upon as an almost sufficient prerequisite for promoting financial stability. Against this background, central banks’ core contribution to preserving and strengthening financial stability consisted in delivering low inflation rates. However, not everyone agreed. Prior to the outburst of the crisis, several economists had publicly expressed doubts on the viability of mainstream economic thought or had warned against some of its vulnerabilities. Special mention deserves Crockett, who claimed ever since 2003 that the “peace dividend” yielded by the successful war against inflation had not lived up to expectations and therefore the battlefront against financial instability should not be overlooked.

exchange rate targeting, was not really an option, given the particularities of the Romanian economy. The explicit use of the exchange rate as an anti-inflationary anchor would have been extremely risky considering the threat of an excessive current account deficit widening, as well as the low foreign exchange reserves in the first decade of the transition period. The latter would have left the central bank little room for maneuver to protect the exchange rate in the event of a speculative attack. By the mid-nineties, the literature on monetary policy strategies came to include recommendations varying from exclusive focus on monetary anchors to ignoring them altogether. In 1996, Mishkin and Estrella wondered “Is there a role for monetary aggregates in the conduct of monetary policy?” in an article that stirred heated debates. “Not really”, was the conclusion. Even the classical example of successful monetary targeting – the Bundesbank – did not apply the strategy “by the book”. They managed to keep inflation at low levels, but the monetary targets were missed in several years. The success of the Bundesbank’s strategy lay to a greater extent in the credibility of its clearly anti-inflationary stance – also reflected in announcing annual inflation targets – than in strict compliance with monetary targeting rules. Although central bankers tend to think of themselves as upholders of timeless values – as Mervyn King put it – a new fashion started to attract followers. The era of inflation targeting was dawning.