of the second half of the 1990s were used to finance higher current public spending. following the introduction of the euro, interest rates stabilised as they had broadly converged to the best performers and tax revenue fell as a result of decelerating activity in the early 2000s, causing a sharp deterioration in the public accounts. large and persistent current account deficits translated into a sharp deterioration of the portuguese economy ’ s international investment position, which also went from being close to net zero in the mid - 1990s to almost – 90 % of gdp in 2007. the behaviour of gross external debt over the same period – growing from around 60 % to 195 % of gdp – is even more striking. 1 / 3 bis central bankers'speeches this rising external indebtedness was largely intermediated by the portuguese banking system. banks raised ( mostly short - term ) funds in the international financial markets and converted these into ( long - term ) loans to the private sector. the banking sector ’ s loan - to - deposit ratio increased from nearly 89 % in 1998 to around 156 % in 2007. the public sector also resorted to foreign finance extensively. 2. 2008 – 2010 – global crisis tackled through fiscal expansion disregarding accumulated imbalances these imbalances made the portuguese economy extremely vulnerable to the international financial crisis and its contagion effects. when the crisis hit, a highly expansionary fiscal policy was pursued, disregarding the existing imbalances and the lack of fiscal space. in 2010, the public budget deficit was above 11 % of gdp and gross public debt was around 96 % of gdp – of which, more than half was external debt. with potential output growing very slowly, rising external indebtedness fuelled investors ’ doubts about the country ’ s ability to service its debt. as a result, domestic banks and the government found it increasingly difficult to obtain external financing : banks had to turn to the eurosystem, whereas public debt was increasingly placed in domestic banks. a perfect doom loop embrace. investors ’ concerns eventually led the country to be shut out of the international financial markets in the first half of 2011, after the 10 - year yields had nearly doubled in the previous year. this led to a request for official financing under a financial assistance programme negotiated with the european union and the international monetary fund. 3. 2011 onwards – macroeconomic rebalancing and financial deleveraging : notable progress, but no room for complacency notable progress was achieved with the implementation of the financial

e. a system in which the us dollar, the euro, and the renminbi would all play the euro also has legal tender status in smaller non - eu jurisdictions such as monaco and san marino, which are tied to the euro area by an exchange rate agreement. montenegro and kosovo have unilateral euroisation regimes. see bergsten ( 1997 ) and feldstein ( 1997 ) for a review of the debate. for instance, bergsten stressed that “ the creation of a single european currency will be the most important development since the adoption of flexible exchange rates in the 1970s. the dollar will have its first real competitor since it surpassed sterling ” ( bergsten, 1997, p. 83 ). bis central bankers ’ speeches significant roles, have been increasingly discussed by both academics and policy - makers. but, so far, the us dollar has remained clearly the leading international currency, with the euro a distant second, and the renminbi still lagging far behind. solving these paradoxes and peering into the future requires us to review some of the conceptual and empirical issues that underlie international currency status. this is what i will be doing in my speech today. 1. theoretical definition and determinants consider first the definition of an international currency and the theoretical determinants of international currency status. we have learned from benjamin cohen and paul krugman – who studied the cases of the pound sterling and the us dollar, respectively – that an international currency fulfils the standard aristotelian functions of money ( medium of exchange, store of value and unit of account ) for private and official transactions between residents and nonresidents. 3 an international currency can thus be a medium of exchange, for instance a vehicle to transact two other currencies in the foreign exchange market. it can be a store of value, for instance as the currency of denomination of financial assets held by central banks, sovereign wealth funds or international private investors. and it can be a unit of account, for instance to invoice international transactions in goods and services, which will be particularly unsurprising in this country. the phoenicians, who owed much of their prosperity to international trade, were after all among the first peoples in antiquity to mint coins, which gained international status across the mediterranean world and the middle east. the parallel use in the achemenid period of phoenician shekels and athenian tetradrachms is an example of what would now be