christian thygesen, impact of the euro on money and bond markets, ecb occasional paper series no 1, july 2000. it was extremely important for the success of monetary policy in the eurosystem that a single money market was established right after the introduction of the euro. only a well - developed money market is capable of ensuring a smooth distribution of liquidity across the euro area and the efficient transmission of monetary policy impulses. the euro bond markets have become “ larger ” and grown closer together. in order to survive the more intense competition within the euro area, major issuers ( especially the national governments ) are attempting to redesign their debt securities to make them as attractive as possible to potential investors. thus some euro - area countries have begun to concentrate their issues on specific maturities in order to increase their liquidity and achieve benchmark status in certain market segments. investors have also adapted quickly to the new market conditions and - if the figures for germany are any indication - have invested heavily in the bonds of other euro - area countries. as a result, the interest - rate differentials for euro - area government bonds have narrowed appreciably. the remaining small spreads are largely due to differences in liquidity. the progress that has already been made does not, however, detract from the fact that differences in the legal systems and settlement systems stand in the way of a more far - reaching integration of the bond and equity markets. in comparison with the united states, for example, they give rise to unnecessary transaction costs. estimates suggest that a better market infrastructure could reduce the settlement costs involved in cross - border securities transactions so much that they would then be at a level comparable to that of domestic transactions. iv now i would like to talk about the euro ’ s role among the other major international currencies. here it is important to distinguish between two separate issues : the market shares which the euro has captured as an investment and reserve currency and the movements in the euro ’ s exchange rate. while it is true that the euro is a new currency, it was able to benefit from the world - wide acceptance of mainly the dm. this is especially evident in the size of its market shares. the euro is the second most important international investment and reserve currency, after the dollar, and its market shares far exceed those of the yen. around one - quarter of cross - border bank positions are denominated in euro. the corresponding shares of the us dollar and the yen amount to somewhat

the interbank market peaked at more than 1. 8 percentage points. owing to the renewed sharp increase in banks ’ mistrust, the overnight money market also suffered heavily. further adjustments to liquidity policy were unavoidable under such circumstances. the transition to fixed - rate tenders with full allotment of all bids decided upon in october 2008, together with a widening of the collateral framework in our refinancing operations, ensured that all banks received the liquidity they needed at the interest rate deemed appropriate from a monetary policy perspective. the escalation of the financial market turmoil from mid - september onwards and the global shock to confidence led to a considerable change in the outlook for the real economy and price stability changed. against this background, the governing council of the ecb has lowered its main policy rate decisively since october 2008 from 4. 25 % to 1 %. moreover, given that very short - term rates are now at an appropriate level, the governing council decided at its meeting last week to implement further measures in order to fulfil its primary goal – that is, safeguarding medium - term price stability. these measures include the introduction of tender operations with a maturity of 12 months and outright purchases of covered bonds up to a maximum amount of €60 billion. the governing council will provide detailed information on the covered bond programme after its next meeting. such “ non - standard ” monetary policy measures extend the traditional monetary policy toolbox of the eurosystem. they reflect the bank - based nature of the financial system in the euro area – which implies that monetary policy impulses are predominantly transmitted through the banking system – by aiming to improve funding conditions for banks. all in all, the monetary policy actions and the rescue schemes for banks in stress have helped to stabilise the financial system at a time when systemic stability was at risk. thus, they have put a floor under the tail risk of a self - enforcing uncontrolled downward - spiral from feedback effects between the financial and the real spheres. however, monetary policy has created an enormous expansionary stimulus – not just in the euro area but also worldwide. while this stimulus is currently warranted, we have to keep in mind that it has to be reduced or even inverted very quickly as soon as the overall situation improves. the need for such a quick retraction of the expansionary stance stems from at least two factors. the first is that part of the monetary stimulus will remain in the pipeline for some time due