mr. tietmeyer asks whether the euro can assume the role of a major international currency speech given by the president of the deutsche bundesbank, prof. hans tietmeyer, at a luncheon at the american express company in paris on 28 / 10 / 97. i. the “ american express company ” is not only a financial institution, but also a brandname familiar throughout the world. the “ american express credit card ” and “ american express travellers ’ cheque ” are acknowledged in most countries as safe and convenient means of payment, which facilitate not just travel. for decades past, therefore, “ american express ” has been a symbol of increasing globalisation. there are not many other enterprises that can claim that. today, however, i do not want to talk about payment instruments. even so, my reference to the travellers ’ cheque takes us straight to our topic : alongside the “ greenback ”, the travellers ’ cheque is likewise a symbol of the dollar ’ s status as the absolute number one among the currencies of the world. ii. a currency which serves at the same time as a unit of account, a medium of exchange and a store of value - - for private investors and public monetary authorities alike - - is known as an international key currency. what are the pre - requisites that a national payment medium needs, in order to assume these functions? monetary history teaches us that the international role of a currency may often develop spontaneously with the country ’ s political and economic significance. hence it is not surprising that, besides gold, the pound sterling played the overriding role in the international monetary system for many decades. a well - functioning banking system and efficient capital markets had evolved in the united kingdom at an early date. the industrial revolution began in great britain, and helped the british economy to gain an edge over all other countries. the role of sterling was primarily based on the uk ’ s position as a great power, in both economic and political terms. what is more, over a period of two centuries sterling did not depreciate against other currencies. once the significance of sterling started to decline, the dollar took the stage as the principal international currency. this was due not only to the us ’ rise to the status of a world power. another important factor was that, for a long period, the dollar was far less exposed to inflationary pressures than other currencies. by virtue of the bretton woods system, the us dollar

became the official key currency in 1944. it served national central banks as a benchmark currency, an intervention currency and a reserve currency alike. following the collapse of the bretton woods system, and given the domestic stability problems in the united states, the dollar forfeited that formal function. even so, it retained a leading role. as before, the united states remains the world ’ s leading industrial and trading nation. that is why dollars are so highly acceptable worldwide. moreover, the magnitude of the us financial market ensures a wide variety of investment options. the decontrol of exchange rates, the increasing freedom of capital movements and diverging stability records are the reason why other currencies, such as the deutsche mark, have been able to establish themselves alongside the dollar - - albeit on a far more modest scale. after all, currencies, too, compete to an increasing extent for the favour of the international transactor. besides economic significance, a dynamic economy and a sufficiently large economic area ( duly integrated in world trade ), it is primarily monetary conditions that must be met. an international key currency must be able to exhibit a successful stability record over a lengthy period. while the markets may forgive short - lived slips, long - term failures are penalised. the markets ’ memory often stretches back a surprisingly long way. they heed the faintest signs that a currency ’ s stability may be at risk. it is that which makes the credibility that the responsible monetary authority enjoys all the more important. it has transpired that such credibility increases with the degree of independence from government instructions. if a central bank has to serve two masters, namely monetary stability and the promotion of economic activity, it usually comes to grief in both areas. then its credibility is compromised for a long while. iii. the introduction of the euro marks a watershed, not only for the monetary situation in europe but also for the global monetary system. little more than a year before its planned introduction, the world ’ s financial markets are now wondering : will the new currency be strong or weak? can it become a serious alternative to the dollar as a reserve, investment and transaction currency? in europe, great economic and political hopes are being pinned on the euro. the old continent is to be strengthened as a global economic power, european integration is to be fostered. it is hoped that it will be possible to cope more effectively with the challenges posed by globalisation. moreover, many people are hoping that the euro will constitute