andreas dombret : global currency blocs – is the euro a burden or a competitive advantage? opening address by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the europe symposium of the cdu economic council, brussels, 3 december 2013. * 1. * * introduction ladies and gentlemen thank you very much for inviting me to the cdu economic council ’ s europe symposium. i am delighted to be here and to have the opportunity to talk to you. as regards the theme of the symposium – global currency blocs – there is one thing we can state with some pride, and that is that the euro has become the second pillar of the international currency system. 2. the euro as the second pillar of the international currency system for practically all purposes, the euro is the second most important currency in the world – a role it took over from the deutsche mark. in some respects it has even surpassed the deutsche mark, for instance in its share of global currency reserves. obviously, the us dollar remains the world ’ s leading currency. jeffrey frankel from harvard university did recently point out that the us dollar ’ s leading role is not a law of nature and that the day may come when it would have to succumb to a rival. however, in his words, “ today is not that day. ” it would probably be presumptuous, in fact, to believe that the euro might steal a march on the dollar in the medium term. nonetheless, as the second pillar in the international currency system it fulfils an important role – it provides support and stability. at the same time, the euro gives international investors additional options in a very liquid market. however, one thing is undeniable, and that is that the problems in the euro area at present have weakened the euro ’ s standing. we need to deal with these problems if the euro is to play a lasting role as a stabilising factor in the international currency system. the reforms in the individual euro - area countries are an important step in this direction. another step is the reforms in the institutional framework of monetary union, principally the work on a banking union. these measures put the euro area well on the way to rendering itself less vulnerable and remaining an attractive destination for international investors. after all, in the final analysis robust economic health in the euro - area countries is crucial to the future role of the euro. 3. competitiveness in europe and one thing which is

) collateral. in that way, banks transform illiquid and lower - quality assets into high - quality liquid assets in a process known as collateral transformation. the opportunity cost of this trade is currently 50 basis points : the spread between the main refinancing rate and the deposit facility rate. banks thus have a solid financial incentive to self - insure against liquidity risk in the market. lowering the spread to 15 basis points has the potential to reduce the opportunity cost and provide incentives to shift from market to central bank funding. the good thing is : we have enough time to observe how market activity evolves over the coming years. in particular, we have to evaluate the trade - off between the potential reduction of volatility and less market activity with possibly higher collateral transformation. 5 closing remarks ladies and gentlemen, let me conclude. while our balance sheet will gradually shrink, excess liquidity will remain significant over the coming years. accordingly, while some volatility cannot be ruled out, short - term money market interest rates are expected to continue evolving in the vicinity of the deposit facility rate. over the next two years, we will closely monitor three key aspects until our next sched ‐ uled review : first, we will assess the development of money market activity, including in the medium - term segment. second, we will analyse possible fluctuations of short - term interest rates and their influence on the transmission of monetary policy. and third, we will scrutinise the degree of collateral transformation. let me be crystal clear : an adjustment of our operational framework was necessary to reflect structural market changes. is that framework now set in stone? i don ’ t know yet. but in the past, we have shown our capability and flexibility to adapt to changing market conditions. let ’ s be open to this, now and in the future. 1. see fratianni, m. and j. von hagen ( 2001 ), the konstanz seminar on monetary theory and policy at 30, european journal of political economy, vol. 17, pp. 641664, for a full account of the history of the konstanz seminar. 2. borio c. and p. disyatat ( 2010 ), unconventional monetary policies : an appraisal, manchester school, university of manchester, vol. 78 ( s1 ), pp. 53 - 89, september. 3. bindseil, u. ( 2004 ), monetary policy implementation : theory, past,