krzysztof rybinski : poland and euro panel speech 1 by mr krzysztof rybinski, deputy governor of the national bank of poland, at a debate organised by demoseuropa – centre for european strategy and ebert foundation, warsaw, 26 november 2007. * * * in my speech 2 in june this year i outlined the key benefits and costs of adopting the euro. let me briefly restate what they are : on the benefits side of adopting a common currency economists usually mention the following factors : lower transaction costs, lower interest rates, financial integration and trade creation. when speaking about costs economists usually cite two groups of factors : asymmetric shocks and arising micro - and macroeconomic imbalances. it is important to note that some costs will materialize if asymmetric shocks hit the enlarged eurozone. we do not know the likelihood of such shocks though, so it is impossible to calculate the expected value of costs related to these events. we know, however, that the probability of asymmetric shocks declines with rising similarity or progressing real convergence of the eu economies. let me also stress that the magnitude of costs depends crucially on domestic policy – prudent banking sector supervision, labor market reforms and sound fiscal policies to name a few. adoption of proper policies reduces future potential costs related to eurozone membership and, at the same time, enhances future benefits. in my view, given the evidence that reforms have been halted in many countries after entering the eurozone, these measures should be taken before the euro area accession. the last twenty years have been unusually good for the global economy. growth was high and less volatile, inflation fell to low levels in both developed economies and in emerging markets. real returns enjoyed by investors in bond and equity markets were higher than ever in the post - war history. there are however signs that this “ great moderation ” era may be coming to an end. if this is the case then the coming years may prove truly challenging for the central banks in emu - graduation zone. let me explain in some detail several factors that justify such claim. 1. agflation, is the rise of inflation due to increase of food prices. in recent months we have witnessed a significant increase of food prices, grain and oilseeds being the leaders. prices of food products on international markets has risen by almost 40 per cent within last two years and prices of grain and oil seeds has almost doubled within this period. many forecasters

##ised capital control measures, but that is a topic for another day. 4. conclusion in conclusion, i would like to reiterate the imf ’ s views on the importance of maintaining sound policies and strong frameworks, including monetary policy and exchange rate flexibility, as the first line of defence against excessive capital flows. robust macroprudential measures as well as capital flow management measures can serve as a supplementary defence mechanism, where warranted. the macroeconomic environment should encourage domestic savings and the deepening of financial markets so that capital flows can be effectively absorbed and channelled towards productive investment. the work on capital flow management by the imf and the oecd, which forms part of the g20 agenda on the reform of the international monetary system, under the international financial architecture working group, is crucial in the construction of a macroprudential framework and policy tools currently under consideration by various countries. therefore, a more consistent global approach to capital flow management issues among various international frameworks and agreements should be facilitated, including addressing data gaps. we therefore welcome and support the current collaboration between the imf, the oecd, the g20 and the bank for international settlements in this area. thank you.