rates, but also because they change the liquidity conditions faced by a large portion of leveraged institutions. a number of empirical studies have explored this issue. in line with the assumption that lower short - term interest rates reduce the cost of leverage and thus encourage an expansion of intra - financial sector transactions, these studies find that money market activity, particularly in the secured segment, expands when monetary policy is accommodative. for example, adrian and shin ( 2008 ) demonstrate that the balance sheets of us broker / dealers expand when monetary policy is accommodative. 6 similar evidence is provided for the us repo market by gorton and metrick ( 2009 ), who found that activity started to increase significantly from 2001 – that is, at a time when monetary policy in the us was relatively loose following the bursting of the dot - com bubble. 7 acharya and schnabl ( 2010 ) provide similar evidence related to the asset - backed commercial paper ( abcp ) market. 8 in summary, if the process that has been set in motion under the aegis of the g20 has the potential to place a whole new segment of finance under regulatory scrutiny and oversight, the new collateral - based finance can give a central bank stronger influence over financial and macroeconomic conditions more broadly. 5. monetary policy in a high - debt environment i mentioned earlier that collateral is likely to play a growing role in the functioning of capital markets. demand for collateral is thus likely to increase. but, given the collapse of securitisation activity during the crisis, we could imagine that the current decline in the creation of securitised assets might become a permanent feature of the new landscape. there will be fewer abss created out of bank books. sovereign debt will certainly be widespread. it will probably replace abss in the collateralisation of secured lending. unlike in the past, the risk characteristics of this type of debt instrument will be more graduated than was considered possible only few years ago. the risk associated with what used to be considered risk - free assets is something new in financial markets. what type of risk will be incorporated in the market returns on sovereign debt? for people of my generation, sargent and wallace provided the traditional answer : in a game of chicken between an irresponsible and institutionally strong fiscal authority on the one hand and a committed but unrealistic central bank on the other, the former is bound to win. inflation will be the outcome. knowing this, investors

branches or off site, for example in shopping centres, had to be converted. this was already achieved within less than one week. as a result, in all participating member states the bulk of cash transactions could already be made in euro after 10 days. this means that the euro banknotes and coins have been introduced considerably faster than originally foreseen by the ecofin council, which had set a goal of two weeks. a fifth factor contributing to a smooth changeover was the commitment of the banking sector in almost all euro area countries to put, in particular, the low denomination euro banknotes ( i. e. eur 5 and eur 10 ) into circulation on a large scale at the beginning of 2002. this considerably reduced the need for retailers to hold large amounts of cash during the first few days of 2002. in those euro area countries one or both of the low denomination euro banknotes were dispensed via at least part of the atm network at the start of 2002. in countries where welfare payments are paid largely in cash ( i. e. belgium, france and ireland ), this was also done in low denominations. moreover, banks paid out predominantly low denomination euro banknotes over the counter. all this resulted at the beginning of the year in a circulation of low denomination banknotes ( i. e. eur 5, eur 10 and eur 20 ) of 82. 4 % in terms of actual banknotes and 43 % in value. this far exceeded the proportion of national banknotes of similar value previously in circulation in the individual euro area countries. in conclusion, the eurosystem is proud of and grateful to all those involved for their contributions to this historic moment. the enthusiasm of the citizens of the euro area to get hold of euro cash from mid - december can be seen as a clear vote for a united europe. i am very confident that the changeover will proceed to its completion as smoothly and successfully as it has started. recent monetary and macroeconomic developments let me now turn to the macroeconomic situation in the euro area and the outlook for price stability over the medium term. recent information has confirmed the governing council's earlier assessment that economic activity in the euro area was weak in the second half of 2001 and will probably remain subdued in early 2002. however, although the outlook is still surrounded by a high degree of uncertainty, there are indications pointing to a gradual economic recovery in the euro area in the course of this year. this is signalled, inter ali