those three conditions. but that will not occur automatically. for that to happen, the preconditions have to be right. replacing the dollar as the leading currency is, however, probably not on the agenda. monetary history has shown that a key currency being superseded is ultimately due to an internal crisis in the country in question. the former leading country loses the confidence of the markets. the capacity for domestic stability diminishes. the economy becomes less competitive. that was also the history of the decline of the pound sterling as a global key currency following the second world war. there are no indications whatsoever of a comparable development in the case of the us dollar. on the contrary, the dollar is a strong currency and - - despite a current account deficit and growing external debt - - the us fundamentals do not point to a change in that situation. x. the euro and the dollar can enter into fruitful competition, however. the world monetary system as a whole will be able to benefit from healthy competition between two currencies which are geared to stability. there are three particular factors which would promote productive competition of this kind : firstly, that the current high degree of correspondence in the anti - inflationary stance of the united states and europe continues ; secondly that fiscal policy in both the unites states and europe remains on a similar course of consolidation and - - particularly in europe - achieves further progress ; and thirdly, that both the united states and europe fulfil the expectations of meeting the economic challenges which they face. the united states must demonstrate that its high debtor position and hence its future financial obligations are covered by the dynamism, efficiency and innovative potential of its economy. the europeans must show that they are making structural changes to tackle the problem of unemployment and that they are improving their competitiveness in global markets. productive competition of this kind does not imply a rejection of greater world - wide cooperation in economic and monetary policies with the aim of contributing to higher exchange rate stability. on the contrary, it is precisely in the future, too, that cooperation of this kind will be meaningful and desirable. in saying this, what should not be overlooked is that exchange rates are not the actual operational parameters. rather, they are the result of economic developments and economic policy in the participating countries. for that reason, there is one lesson which should conclude this lecture. it is perhaps as old as monetary history itself. a suitable monetary framework can help a country to carry out the structural reforms which

terms, the weight on the modal forecast has risen. but uncertainties remain around the outlook for consumption, which i will discuss shortly. it is worth noting that domestic demand growth has outstripped growth in gdp, running at around 3¼ per cent. this gives us confidence in our forecast of gdp growth a little above trend over the next couple of years. that is, that gdp growth is likely to have a 3 in front of it. the surveys of business conditions very much support that assessment with conditions in many parts of the economy assessed to be well above average ( graph 4 ). 5 / 13 bis central bankers'speeches that pace of growth, should it transpire, will eat gradually into the spare capacity in the economy. hence we expect the unemployment rate to gradually decline from here. the unemployment rate declined by a ¼ percentage point over the past year ; we are expecting something similar over the year ahead. the reduction in the unemployment rate has stalled for some months. i find the unemployment rate is the most useful single statistic to assess the state of the labour market. the unemployment rate has remained steady in an environment where employment growth has been measured to be particularly strong. labour supply has risen strongly alongside it. part of the explanation for this is an increase in female participation and older workers remaining in employment longer than previously. 7 the strong employment growth has reduced unused capacity, which is a positive development, but not in a way that has lowered the unemployment rate. forward indicators in terms of vacancies and hiring intentions remain positive. gdp growth is expected to pick up. this gives me reasonable confidence that the unemployment rate will resume its gradual downward trend ( graph 5 ). 6 / 13 bis central bankers'speeches the gradual decline in spare capacity is expected to lead to a gradual pick - up in wages growth. a critical question is : when will wages start to rise in a meaningful way? recent data on wages provides some assurance that wages growth has troughed. the majority of firms surveyed in the bank ’ s liaison program expect wages growth to remain broadly stable over the period ahead. over the past year, there has been a pick - up in firms expecting higher wage growth outcomes. some part of that is the effect of the fair work commission ’ s decision to raise award and minimum wages by 3. 3 per cent. talking to businesses, such as yourselves, suggests that there are pockets where wage pressures are more acute. but, while those pockets are increasing gradually, they remain fairly contained