, if the fund were to develop a detailed manual it would be accused of having a cookie cutter approach to the issue. it is not surprising that there is no such manual, for there is no way of specifying the right exchange rate system for a country without a careful analysis of its circumstances – and there is no question that among those circumstances is its exchange rate regime history. " if it ain't broke – or likely to break soon, or being held together only with the help of economically distortionary and costly measures – don't fix it " is good advice in this area too. the general presumption then is that as countries become more developed, they should be moving away from intermediate regimes, towards greater flexibility of the exchange rate – or in some cases towards a hard peg. iv. exchange rate surveillance and advice to return now to the new decision on bilateral surveillance, the quotes with which this paper opens raise two questions. first, there seems to be a tension between the focus on an unsustainable balance of payments position, and that on exchange rate manipulation, which relates to an undervalued exchange rate. from the viewpoint of what types of situation might give rise to disruptive exchange rate movements, a currency that is overvalued, or a balance of payments deficit that is so large as to be unsustainable, can give rise to rapid exchange rate movements. one example is the current account deficit of the united states in recent years. there was no exchange rate manipulation ; nonetheless by most measures the currency was overvalued. possibly the overvaluation could be offset – though not fully, so long as other countries maintained their dollar pegs – through fiscal policy, thereby reducing the underlying threat to stability of the global exchange rate system. which takes us to the second question : why does the decision relate to " exchange rate policies that result in external instability, regardless of their purpose … " ( underlining added ) rather than to " policies that result in external instability, regardless of their purpose "? the failure to use fiscal policy to deal with an unsustainable current account deficit would be as deserving of staff and board censure as would policies – such as sustained intervention – to manipulate the exchange rate to increase net exports. presumably the emphasis on exchange rate policies was included to deal with the difficulty that if other countries peg to the dollar, then a significant part of the normal adjustment mechanism is neutralized – and that the pegging decision

contribute to it. let me start my discussion by stressing the importance of securities markets and the particular interest of the ecb. securities trading, clearing and settlement are indeed at the core of our financial system and any inefficiencies in these processes are bound to have important negative implications. when trading, clearing and settlement are too costly or complex, financial transactions are discouraged. this in turn would have negative effects on the allocation of capital, risk sharing across agents, and economic growth. on its part, the ecb has a particular interest in integrated securities markets because all central bank credit operations need to be fully collateralised. the functioning of the payment system and the implementation of monetary policy therefore crucially depends on a smooth and efficient working of the securities clearing and settlement infrastructure. unfortunately, reality is quite different and substantial barriers continue to exist to efficient crossborder clearing and settlement, as identified by the group headed by alberto giovannini. the european securities infrastructure today remains highly fragmented with over 30 national exchanges, about 20 national clearing and settlement institutions, and an additional 20 other systems in acceding countries. in this period of transition, we have to cope with a substantial degree of fragmentation of our securities infrastructure, which adversely affects market liquidity, leads to redundant investments in different systems, and requires additional layers of intermediation. compared to, say the us, where the infrastructure has been over time highly consolidated, the costs of securities settlement are greater in europe. although it is very hard to calculate the benefit that we could gain from consolidation and therefore the opportunity cost of the remaining fragmentation, there can be no doubt that it is substantial. i am of the opinion that there are good reasons to believe that integration in the european securities markets will accelerate in the future. the european trading and post - trading infrastructure is now in a period of consolidation, with technological and regulatory changes supporting the removal of barriers to the cross - border provision of services. the proposed new investment services directive should simplify the regulatory framework and increase the uniformity of securities regulation. it will also lead to the effective adoption the single passport concept and contribute to safeguarding issuers and investors ’ interests. this would also be supported by the provisions of the market abuse and prospectuses directives. the adoption of an appropriate set of international accounting standards, as well as the proposed transparency directive, dealing with disclosure requirements of listed companies, should equally enhance investors ’ confidence and uphold the transparency of european equity markets. overall, i also observe that