from time to time, this has even led to new types of financial business that we recognise today. lately, a trend has been the emergence of new suppliers of payment services outside of the bank domain, in europe facilitated by legislation. their heterogeneity is large, but so is the potential of some of them. private and public sector do what they do best my third takeaway regards the role of the private and public sectors. while their roles may have changed over time, they have invariably explored their comparative advantages. throughout history, the private sector has showcased that it is an 8 excellent innovator and understands consumer needs. where there is a problem, it often provides a solution. the primary role of the public sector revolves around trust, universal services to all citizens, and security. one fundamental role of central banks today is to facilitate payments between banks. while the predecessor to our current clearing and settlement system may have started life in a london tavern, it later moved into the central banks. the main reason for this is to help banks settle payments using accounts at the central bank, i. e. in central bank money, thus abolishing the credit risks that could arise if they instead used commercial bank money. central bank money is generally regarded as the safest settlement asset that could be used. while the private sector innovates, the public sector needs to be ready to ‘ step in ’ and correct market failure, provide coordination, guidance, and exercise its comparative advantages from time to time. in my historical walkthrough, i gave you some cases of this : the foundation of the riksbank on the ruins of stockholms banco ; postgirot, a rare example of the private sector failing to accommodate consumer needs ; and amsterdamsche wisselbank was an example of the government trying to solve the problem of not having uniformity of money. network and scale effects as important as ever my fourth and final lesson relates to network and scale effects, and the barriers to entry they pose. providers of new payments solutions need to invest money for development, setting up the infrastructure and marketing. hence, there is a high fixed cost associated with market entry. furthermore, to have a successful payments method, you need to have both payers and payees on board, and you need to reach a critical mass to cover your costs. we say that payments are a scale business. however, reaching a critical mass can be difficult since the value of the payment method is determined by the number

##ened in the wake of ongoing sluggish demand in the euro area and elsewhere. this outlook is consistent with the june 2009 eurosystem staff projections for euro area inflation, in which annual hicp inflation is seen to range between 0. 1 % and 0. 5 % in 2009, revised slightly downwards from the march 2009 ecb staff projections. for 2010, eurosystem staff project annual hicp inflation to range between 0. 6 % and 1. 4 %, broadly unchanged from the march 2009 ecb staff projections. available forecasts from international organisations provide a similar picture. against this background, it is again important to stress that the indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to these projections are broadly balanced. on the downside, these risks relate in particular to the outlook for economic activity, while on the upside they relate to higher than expected commodity prices. furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. turning to the monetary analysis, the latest data confirm the continued deceleration in the pace of underlying monetary expansion and thus support the assessment of moderate inflationary pressures. in april, the annual growth rate of m3 declined further to 4. 9 % and that of loans to the private sector to 2. 4 %. however, especially with regard to m3 growth, the pace of decline in annual growth rates was slower than in previous months, reflecting a brisk growth in monetary aggregates in april. the latest developments in m3 components continue to reflect to a large extent the impact of past reductions in key ecb interest rates, which have led to declines both in the levels of different deposit interest rates and in the spreads between them. this has implied, for instance, lower opportunity costs for market participants to shift funds into highly liquid overnight deposits and explains the strengthening of annual m1 growth to 8. 4 % in april. at the same time, the reduced remuneration of other short - term deposits and marketable instruments continues to foster the allocation of funds to instruments outside m3. the outstanding amount of mfi loans to the private sector contracted somewhat further in april. this development is again mainly due to a negative flow of short - term lending to nonfinancial corporations, which partly reflects a lower need for working capital in view of the sharp deterioration