device. the euro is a commitment device whereby member countries increased the cost of policy laxity with the intention of obtaining the benefits of enhanced credibility that policy would be disciplined. unfortunately, the discipline was nevertheless not maintained, and the commitment penalty has been correspondingly severe. bis central bankers ’ speeches let us recall that the euro was set up after 30 years of debate on how to reduce the disruptive impact of divergent monetary and exchange rate developments, including numerous devaluations, on real trade and investment integration in europe. it also reflected the chequered experience of many european countries in the 1970s and 1980s with surges of inflation in response to monetary and fiscal indiscipline. the lack of fiscal and monetary credibility resulted in high nominal and real interest rates and recurrent relapses. was there a way for these countries to acquire the credibility of the bundesbank? both of these problems could seem to be solved if a single currency was adopted and put beyond the reach of politicians with their tendency to succumb to a short - term policy perspective. in effect, a non - state currency. granting full independence from government in a democracy to a central bank meant that its mandate would have to be a focused one. central banks through history have occasionally acted beyond a narrow inflation targeting remit to address acute financial stability crises in the past ( as when the bank of england famously secured permission in a moment of panic to exceed the limitations of its charter – first in 1847 in the crisis that coincided with the great irish famine ). indeed, the exception that proves the rule was the us federal reserve ’ s passivity which, it is generally accepted, lengthened and deepened the great depression of the 1930s. but that experience was not really taken into account in maastricht treaty planning. by the time of that planning, deep systemic crises were probably seen as a thing of the past for the advanced economy in part because of improved legal and financial infrastructures and also because, since the time of keynes, fiscal policy was seen as having the tools to stem and reverse any aggregate demand declines that might occur. against this background, designing a mechanism which could cope with the moderate fluctuations of the normal business cycle and sporadic fiscal pressures and was sure to eliminate inflationary surges and exchange rate changes seemed safe and even prudent. for the mechanism to work, however, sovereign states had to go beyond declarations of intent. they had to design and adopt a commitment device. as a

thomas jordan : structures of a new financial system summary of a speech by mr thomas jordan, vice - chairman of the governing board of the swiss national bank, at the volkshochschule zurich, university of zurich, zurich, 15 april 2010. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * well - functioning financial systems are fundamental for long - term economic growth. they enable capital to be allocated efficiently and facilitate trade in goods and services. however, financial systems also harbour major risks. the recent financial market crisis clearly revealed the vulnerability of our globally integrated financial system. wrong turns taken in the past few years together with government rescue measures have led to a situation that is, from a liberal perspective, untenable. all this underscores the urgent need to make financial systems more robust and to minimise the risks faced by governments and by national economies as a whole. it will not be possible to banish crises forever, since we cannot be sure what the origins of the next crisis might be or when exactly it will occur. building a more robust financial system therefore represents a major challenge. the key role that banks play in the economy combined with their high level of vulnerability clearly underline the necessity of effective bank regulation. greater stability and security, however, do not automatically mean less efficiency or growth. on the contrary, the creation of an intelligent and stabilising framework is a basic prerequisite for the efficient functioning of the financial system. to achieve this, systemic risks need to be more clearly identified and kept in check by means of better regulation. this involves, among other measures, the introduction of additional systemic capital and liquidity requirements, countercyclical buffers and provisions regarding risk concentrations in interbank positions. the financial markets, for their part, need more standardisation and greater transparency. it is important, for example, that products are increasingly traded and settled through stock exchanges. moreover, a market economy can only function efficiently if companies – including banks – can be allowed to fail and disappear from the market as a consequence of poor decision - making. the aim of such reforms is not to prevent banks from taking risks, but to ensure that, in future, the banks themselves fully bear the risks they take.