##ch. staying out of the eurozone did not prevent us from running into the boom. now that we have to face the bust, it is not clear either whether having an independent monetary policy places us in a better position to smooth the adjustment. that is because the effectiveness of monetary easing and the subsequent depreciation is seriously limited by the negative wealth effect on the sizeable unhedged foreign currency liabilities the private sector had accumulated. in short, with integrated financial systems, large capital flows have been taking place in new member states regardless of the fact that they have not yet introduced the euro. euro adoption does not carry an extra risk in this respect, on the contrary, it may help eliminate potentially dangerous currency mismatches. it is important to see that in this respect, it would eliminate a source of instability from the point of view of the eurozone parent banks as well. let me now turn to the implications the current crisis may have on euro adoption strategies. first, the crisis clearly illustrates that having your own currency may be more of a source of shocks than a shock - absorbing device. you may say that hungary deserved what it gets now, but there are other countries with more sound fundamentals that are undergoing serious stress. second, the crisis is an obvious indication that the years of abundant global liquidity are over. we are probably in the middle of a credit contraction globally and the chances of another credit - boom evolving in the foreseeable future are minimal. the risk of a credit - fuelled boombust, should a country enter the eurozone in the next couple of years, is greatly reduced. third, the crisis may have increased the disciplining power of financial markets. the deleveraging process that we are going through implies a thorough repricing of risk. just like in other asset classes, there is increased differentiation among government bonds based on the issuers ’ risk profile. this is well illustrated by the unprecedented differences we currently see between cds spreads on bonds of euro area sovereign issuers. countries with weaker public finances, and hungary is obviously one of them, will receive stronger incentives from the financial markets in the coming years to put their fiscal house in order. this means that the crisis may actually speed up the most important structural reform in hungary, the muchneeded scaling back of overly generous the welfare state. from the euro strategy perspective this would be good news, since, as i said before, we think that adopting the euro without going through this painful

henrique meirelles : brazil - argentina local currency payment system speech by mr henrique meirelles, governor of the central bank of brazil, at the inauguration of the brazil - argentina local currency system, buenos aires, 2 october 2008. * * * it is an honor to attend today the launching of the brazil - argentina local currency payments system ( sml ). i am certain that this initiative will be a watershed in the bilateral relations between the two nations. coincidentally, the new system kicks off in a period of financial turmoil and liquidity crunch in international trade, in which cooperation among central banks becomes fundamental to facilitate trade and to deepen economic ties. central banks are responsible for ensuring adequate international payments systems. in processes of economic, financial and trade integration, the objective is to establish an efficient payments structure for intra - regional transactions. when flexible and unobstructed payments systems are available, trade transactions flow with greater ease and lower costs, and financial flows tend to intensify. this is what we expect from the new sml system. initial obstacles have been overcome. the mechanism of the sml will trigger significant changes in the way in which companies export and import. in brazil, exporters may now operate in real, while argentine businesspeople may operate in pesos. each one of our countries established a consistent framework for management of the system. the priority was to create a secure arrangement that will provide both exporters and importers with a simplified way to settle their transactions with a degree of ease similar to that with which they effect payments within their own countries. from this point forward, there is no doubt that the private sector will take it upon itself to create new financial products and further deepen the real - peso market. indeed, deepening of the real - peso market, reduction of trade obstacles and access on the part of small and medium exporters are the primary objectives of this initiative. despite noncompulsory, the facilities and lower costs of the sml should attract exporters and importers. there will be no foreign exchange contracts, despite documentation currently required will remain mandatory. the essential alteration for brazilian exporters will be the need to register the operation in real. with elimination of a third currency in direct transactions among companies, exporters will set their prices in the currency of their own countries. thus, they will be better able to calculate their margins precisely, since they will no longer be exposed to exchange rate risk. at the start,