in 1990 to more than 100 % in 1996. the use of derivatives increases the volume of transactions in financial assets that can be carried out with the existing money balances : the demand for and supply of securities increases by a multiple of the available liquidity. derivatives permit more efficient risk management ; but, used improperly, they entail the risk of instability for market participants. one fundamental reason for the increase in the market value of shares has been the growth in the actual and potential liquidity of national and international financial markets. the reduction in long - term interest rates, fostered by low inflation and a curbing of budget deficits, can also be traced to the same cause. – 5 – the abundant supply of liquidity in the markets is the consequence of the us balance - of - payments deficit and the monetary expansion in japan, which accelerated in mid - 1995 in the wake of the mexican crisis. following the asian crisis, large liquid balances were channelled into dollardenominated instruments and into the european markets. the italian economy the exports of the united states, japan and the united kingdom declined in the first half of 1998. those of the euro area countries continued to rise, although this was largely due to france and germany, which recorded annualised increases of respectively 3. 4 and 2. 8 % compared with the second half of 1997. in italy, the volume of exports contracted in late 1997 and the first few months of 1998, followed by a temporary recovery. the trend at the end of the year appears to have been downward again. imports did not decline until the second half of the year ; prices fell significantly. the surplus on the current account of the balance of payments was to 2. 2 % of gdp, as against 3. 2 % in 1997. the recovery in investment that had begun in spring 1997 faltered in 1998. investment in construction has continued its downward trend. the pick - up in household consumption has proceeded regularly but at a pace that remains modest. industrial production remained broadly unchanged for most of the year. preliminary estimates for january 1999 indicate that output will be at about the same level as in january 1998. firms ’ expectations of new orders deteriorated steadily for most of last year. households ’ confidence, though lower in the second half than in the first, remains relatively high. thanks to the introduction and extension of forms of flexibility in labour practices, employment has staged a recovery ; the number of part - time and fixed - term contracts has increased considerably. on the basis

in response to the availability of factors. with the expansion of purely fiduciary money, there are no binding limits to quantities ; monetary and financial expansion can be very uneven across the world and create tension and instability. monetary and financial instability is detrimental to the efficient allocation of saving and the regular growth of economic activity. it gives rise to inflation, sometimes to recession. it can lead to an excessive concentration of financial resources in some countries and areas and an inequitable distribution of wealth, possibly producing tension and political conflict. the experience of the decades since the collapse of the gold exchange standard has no precedent in history. the free circulation of capital under the gold standard took place in a context in which the growth of money and finance had an ultimate reference, a quantitative anchor in the gold reserves of governments and central banks. the bretton woods system, based on the reserve currency role of the dollar, considerably increased the scope for monetary expansion and multiplication. an ultimate quantitative limit still existed. flows of bank capital were subject to rigid rules ; the international monetary fund adopted forms of – 9 – control designed to ensure compliance with equilibrium conditions by each national monetary system. the absence from 1971 onwards of the link between gold and the international reserve currency and the elimination, partly in response to the ideology of liberalisation and the interests of multinational firms and banks, of every rule concerning the transnational expansion of credit and the transnational circulation of money meant that the growth of money and credit became theoretically unlimited. initially, during the 1970s, this resulted in a long period of rapid inflation worldwide and high interest rates and, ultimately, in a severe slowdown in the industrial economies. the return to tighter monetary control in the 1980s, first in the leading industrial economy and then in the others, led to a gradual reduction in inflation, but at the cost of a further rise in interest rates and a prolonged drag on economic growth. international liquidity expansion continued, partly as a result of progressive liberalisation of shortterm capital movements. it was only in the 1990s that more vigorous and coordinated monetary control efforts by all the industrial countries made it possible to rein in the expansion of money, at the international as well as the national level, and curb inflation. the growth in the supply of securities continued, however ; the complete liberalisation of capital flows encouraged the illusion of unlimited scope for financing public sector deficits and countries ’ external imbalances. the market reacted to the monetary restriction by developing derivative products, which in practice act as