mr noyer sheds some light on the international role of the euro speech presented by mr christian noyer, vice - president of the european central bank, before the monetary commission of the european league for economic cooperation, held in kronberg, on 26 november 1999. * * * introduction first of all, i should like to thank the monetary commission of the european league for economic cooperation for inviting me to address such a distinguished audience and to shed some light on trends, advantages and risks, or rather challenges, with respect to the international role of the euro. economic and monetary union ( emu ) marks a historic step in the european integration process as sovereign states have replaced their national currencies with a common currency and transferred their monetary policy competencies to a newly established supranational institution. european integration, in the monetary sphere as well as in a number of other fields, is a process that has been under way for several decades now and will continue well into the future. emu and the single monetary policy in the euro area are completing the single market for goods, services, people and capital in europe, with a view to enhancing the welfare of citizens within the european union. moreover, the introduction of the euro and its prospectively increasing international role are likely to have far - reaching consequences for the world economy and the international monetary system. against this background, the ecb shares with other policymakers in europe a particular responsibility in setting the right conditions for sustainable and non - inflationary growth in the euro area so as to contribute to the long - term economic welfare of the world economy. today, i shall first concentrate on a few trends of the euro as an international currency, even though available statistical evidence only allows preliminary conclusions. then, i shall discuss the main factors that may influence the international dimension of the euro in the future. finally, i will turn to the consequences, in terms of advantages and possible challenges, that a greater use of the euro by international agents might bring about, both for the euro area itself and in the international context. as a general remark, it must be emphasised that the eurosystem is taking a neutral stance regarding the international role of its currency. this means that we neither hinder nor actively promote the international use of the euro, leaving future developments to be determined primarily by market forces. 1. the euro as an international currency by definition, a currency acquires an international dimension to the extent that private economic agents and official institutions use it outside its

july 2004. markets and intermediaries. regulated markets, characterised by standardised products, and a broad base of investors, with access to information and legal protection, generally offer better - quality information. however, the markets for structured products work largely over the counter, and a large part of the financial sector is unregulated. this implies that a fair evaluation of the instruments and of the counterparty risk is extremely difficult, not only for supervisors and institutions concerned with financial stability but also for the market participants themselves. more standardised securities exchanged on regulated markets would make it easier to price these instruments, as investors could rely on public information and on the observations of traded prices. at the same time, it would help policy makers and regulators to understand where the risks are located and thus monitor the accumulation of imbalances. finally, the third factor i want to mention is the excessive pro - cyclicality of the financial system. we need to introduce a framework to dampen this phenomenon. there seems to be an inherent tendency for financial systems to cause periods of booms, by building up imbalances, and then to go through busts – the rapid and disorderly unwinding of these same imbalances. the challenge is to preserve an efficient financial system as an engine for economic growth and at the same time to ensure its stability. 15 despite centuries of experience and observations of financial crises, it seems to be very difficult to strike the right balance and address this pro - cyclicality. in this context, it seems to me that central banks have a “ franchise ” in assuming this role. they do not have vested interests and can provide for “ stability ” in the long term. v. conclusion let me bring this address to a close with some suggested elements for actions to improve significantly the resilience of financial systems to adverse shocks. resilience is a key word and concept to guide us in the future. first, we need to counter mechanisms leading to herding behaviour and establish the right incentives for achieving a balance between short - term and long - term investors and intermediaries. second, we need to address the lack of transparency. financial regulators need to tighten up requirements in certain segments of the markets and strengthen reporting requirements for formerly unregulated institutions. third, in order to address the “ excessive ” procyclicality of the financial systems, we need to address the mechanisms that intensify fluctuations. for example, capital regulations and provisioning rules as developed