bundesbank is doing in this regard. first, we have been upgrading a large number of our cash processing machines located across our network of branches in germany. second, we are in the process of setting up our new state - of - the - art cash center in dortmund. once operational, this branch will pool operations previously performed by five other branches. it will be equipped with automated transport vehicles and high - bay warehouses. these substantial investments in the existing cash infrastructure are necessary to ensure that cash remains one of the variety of payment options that customers can choose from for their everyday transactions. 3 external resilience of the cash cycle 2 / 4 bis central bankers'speeches ladies and gentlemen, just like the human body, the cash cycle is essentially a closed system. working smoothly and efficiently from within is the foundation on which everything else is based. but this by itself is of little use if the system is not resilient against external influences. attempts to inject counterfeit banknotes into the financial system are one example of this. the good news : their success is limited in the euro area. enhanced security features were introduced with the issuance of the new europa series of euro banknotes. this is to keep ahead of counterfeiters, and the banknotes are also more durable than the first series. placing explosives around atms is a bolder example of an external attack that tends to receive considerable public attention. generally speaking, storing wealth – be it in electronic or physical form – will always attract illegal activities. the way to counter these is with effective law enforcement – white blood cells, if you like. safety measures tend to imply further regulations. regulations tend to generate costs. it is an obvious trade - off. but the only cash cycle that households will trust in is a safe one. trust is particularly important in times of crisis. cash is naturally immune to power outages, failing payment systems or even large - scale cyberattacks. we observe sharp spikes in cash demand in regions affected, for example, by earthquakes or hurricanes. a safe and resilient cash value chain can act as a cushion for households during periods of economic uncertainty. cash does this by establishing a link between households and the central bank. to date, this link has been physical and, for the most part, established via commercial banks. in my view, having a tactile means of payment is important. our evidence suggests that this helps households keep their personal budgets in check. 2 moreover, physical cash

a marked improvement in the deficit in 2006 to 6. 3 % of gdp. in the long run, however, this imbalance needs to be further reduced to a more sustainable level. this can only be achieved to the extent that growth is driven more by export - oriented activities and less by consumption. in view of the large amount of currency in circulation and your interest in ensuring a smooth changeover to the euro, what advice would you give to the public in this regard? as i said earlier, the amount of currency in circulation has been contracting and there is evidence that cash hoards and bank deposits are being converted into euro. we are trying to discourage this premature conversion because portfolio diversification at this stage is expensive and makes little sense. in the case of maltese lira bank deposits, these will be converted automatically, and at no cost, into euro on the changeover date. as for cash conversions, people who are buying euro currency notes from banks and other financial institutions are having to pay exchange commissions ; those who obtain euro notes outside the banking system are being offered an even more unfavourable exchange rate, besides running the risk of receiving counterfeit notes. these early conversions, moreover, constitute a drain on the bank ’ s reserves. we are, therefore, encouraging the public to deposit maltese lira cash holdings into the banking system and retain them in maltese lira denominated deposits, thereby earning interest. in this regard, some of the domestic banks have launched special deposit schemes to attract such funds. those who already hold lira deposits, bonds and similar assets do not need to do anything. such assets will be automatically converted into euro when the changeover takes place, and free of any charges. for those who own maltese lira and euro assets that represent income previously not declared for income tax purposes, the recently launched special registration scheme represents a timely opportunity for such persons to regularize their holdings in terms of the law. in summary, therefore, i would say that there is no advantage to be gained by converting maltese lira assets into euro before the changeover date. from that date onwards, there will be an ample supply of euro notes and coin to satisfy the needs of the public. more importantly, euro currency will be provided at the official conversion rate without any changes or commissions. still on the euro, do you think that people are as worried about inflation as they were? according to the eurobarometer poll taken in september 2006, some 70 % of maltese respondents said