mr welteke ’ s following address on europe and the euro : the view from asia co - speaker ’ s address by mr ernst welteke, president of the deutsche bundesbank, following the lecture held by joseph c k yam, chief executive of the hong kong monetary authority, at the xii international frankfurt banking evening, held on 14 march 2000. * * * i mr yam, first of all i would like to thank you for coming here and for giving us a very interesting asian viewpoint of europe and the euro. as chief executive of the hong kong monetary authority, you have successfully steered your way through some turbulent times in the financial markets since the authority was set up in april 1993. we europeans also need a perspective from outside so that we can objectively assess our ambitious historic project of monetary union. for that reason alone, i feel it would be arrogant of me to offer a “ reply ” to your evaluation because the very concept of a “ reply ” implicitly suggests disagreement even if that is not intended. and so the organisers of this event and i have agreed that, in future, the reply from the bundesbank president will be dropped from the agenda. in the field of economic and financial policy there is no “ ideal path ” which should be followed by all countries in all circumstances. the economic and political settings in individual countries are simply too diverse. the cultural and social conditions also often differ widely. that is why it is so important to compare notes and to learn from one another. ii the respective economic developments in europe and in asia have likewise been characterised by very different conditions in the past few years. whereas in europe various national currencies, supported by convergent economic and monetary policies, were increasingly harmonised and finally moulded together in a monetary union, some of the exchange rate pegs in asia were strained to breaking point. hong kong was and remains one of the exceptions. even during the financial and economic crises in south - east asia in 1997 / 98, it managed to maintain its exchange rate peg to the us dollar. hong kong was like a rock in a stormy sea. for many foreign investors at the time it was - and remains - a firm anchor in the asian markets. but in fact, defending the currency board regime was by no means an easy task. in mid - 1998 many investors were wondering whether hong kong really would defend its exchange rate come hell or high water. for many this was the key question during the asian currency

manoeuvre so that they can equalise differences between different economies. the escb therefore does not pursue an exchange rate target. its monetary policy is oriented exclusively to the risks to internal price stability. the exchange rate does play a certain role, however, because key import goods - such as raw materials and energy - are invoiced in dollars. the decisive factor, however, is always the overall monetary policy setting. this is something which the governing council of the ecb will analyse thoroughly at its next meeting on thursday. iii mr yam, another factor which has doubtless contributed to your successful monetary policy track record is the proximity to the market of the hong kong monetary authority, which is also responsible for supervising the financial markets and the banking sector. monetary authorities must have their finger on the pulse of the financial markets. after all, monetary policy decisions have direct implications not only for the money market but also for the foreign exchange and capital markets - both nationally and globally. today, given interlinked markets and internationally active credit institutions, instability can spread more easily. this tendency is being reinforced by the fact that some credit institutions are acquiring new, truly global dimensions - as is illustrated by the announced merger of deutsche bank and dresdner bank here in germany. hence there is a much greater onus on central banks than in the past to take on responsibility for the financial stability of the financial markets, too. they have to focus their efforts in this context on crisis prevention. central banks need to monitor the markets constantly so that they can detect crisis signals at an early stage. for this they require prudential supervisory information on system - relevant individual institutions at first hand. this is why they also have an oversight function for the payment system, for that could pose substantial systemic risks to the banking sector if major market players were to experience disruptions in their payment operations. in germany it is the bundesbank which, by virtue of its involvement in banking supervision or as the government ’ s fiscal agent, is able to inject the necessary market competence and market proximity into the monetary policy decision - making process. in all the discussion about the tasks and future structure of the bundesbank, therefore, it must be assured that the german central bank remains anchored in the financial markets. the reform of the bundesbank must lead to more streamlined structures and to a strengthening of the bundesbank within the escb. germany, as one of the major industrial nations in the world and the