in the future. it is more important at a time when we are running very large external deficits, because countries investing their savings here must remain confident that their investments will not be eroded by future inflation. and it is important because confidence in our commitment to price stability affords us more flexibility to act aggressively in the event of future shocks. if the economy follows the present forecast of slightly above - trend growth, then it would be appropriate for monetary policy to continue to move the real fed funds rate higher. the pace at which we move and the distance we move will depend, of course, on how the economy performs and how the forecast evolves. but we need to be careful to give the world confidence that we will conduct policy in a manner that will keep inflation expectations stable, at low levels. second, to fiscal policy. we now face a substantial and unsustainable gap between our fiscal commitments and our resources, not just over the longer term with respect to social security and medicare, but also with respect to budget projections for the coming ten years. reducing this gap to a more sustainable level is vital. the decisions we make this year and over the next few years will be important to building more confidence that we have the will to act in a manner commensurate with the challenge. achieving a substantial and sustainable reduction in our fiscal imbalance is important to decrease the risk of lower future growth in private investment which could dampen future productivity gains. reducing our fiscal imbalances is also important for reducing the risk of adverse shocks to financial markets, and for maintaining the willingness of investors to invest in our economic future. improving the credibility of our commitment to this fiscal challenge is the most important contribution we can make towards improving the chance of a more benign adjustment in our external imbalance. third, the u. s. and the major economies have an important role to play in guiding further evolution in the international monetary system. policy makers in asia are well aware of the complications and costs involved in sustaining their current regimes. many are moving toward more flexibility in their exchange rate regimes. the challenge ahead is to help manage the transition to a monetary system that provides flexibility in the exchange rates of all the major economic areas, and this has to be handled with care. even with good policy choices here and in other countries, bringing these imbalances down to a more sustainable level will take time. during this period of adjustment, despite our fundamental economic strengths, we will be vulnerable to an elevated risk of

mr. meyer addresses the competitiveness of financial centres from a swiss perspective address by the chairman of the governing board of the swiss national bank, mr. hans meyer, at the international bankers club luxembourg, held in luxembourg on 23 / 3 / 98. both luxembourg and switzerland are major financial centres in europe. the performance and competitiveness of the financial services industry are thus of key economic and social importance to both countries. i should like to use this opportunity to say a few words on the subject from what may be a somewhat unusual perspective. the factors which determine the competitiveness of an industry are basically the same as those determining the success of the entire economy. in both cases, we are looking at a multitude of quite diverse factors with varying degrees of importance. today, i would like to single out just three of them which i believe are of particular significance : economic stability, social equilibrium ( i. e. political stability ), and the human factor. although each of these elements could be dealt with separately, they should ultimately be viewed in a broader context. let ’ s start with economic stability. i define this as a state of balanced development across the economy as a whole, characterised by steady growth, a modest inflation rate and low unemployment. one of the main prerequisites for achieving such a state is the ability not only to create but to sustain an appropriate economic framework. this is primarily an objective for monetary policy, fiscal policy and competition policy. the main goal of monetary policy is to maintain price stability. this is of course not an end in itself, but a means to an end. a non - inflationary climate facilitates the free play of market forces and keeps socially damaging developments at bay. fiscal policy must, basically, aim in the longer term to balance the public budgets. as with monetary policy, it is a question of steady, ongoing efforts. this should be no surprise, considering that the whole spectrum of public sector activities is reflected in the public budgets. this in turn raises the question of what services the state should perform, who should pay for them and how public - services can most efficiently be provided. where competition policy is concerned, the aim is to create conditions conducive to the free play of market forces. in recent decades, it has unfortunately not always been possible to gain consensus support for the idea of free competition, which is still regarded with scepticism and suspicion by many people. provided that free competition is able to develop in a stable environment, there