klaus liebscher : the euro - an anchor of stability in the international financial architecture speech by dr klaus liebscher, governor of the austrian national bank, at the international financial and economic forum, vienna, 14 november 2002. * * * it is a pleasure for me to be with you today and to address this highly distinguished audience on the euro and its role as an anchor of stability in the international financial architecture. since march 1st of this year, euro banknotes and coins have been the sole legal tender in as many as 12 out of the 15 member states of the european union, i. e. for as many as 300 million people. the completion of monetary integration in those 12 countries, as mapped out in the maastricht treaty, truly represents a culminating point in the process of european integration. with the use of euro cash, the single european currency has finally become a tangible reality for the citizens of the euro area - part and parcel of their everyday lives. it is gratifying to note that this historic cash changeover was completed most successfully with the broad - and often enthusiastic - support of the european citizens, including the people of austria, of course. with the introduction of the euro, the economic weight of this single market has risen to a level matching that of the usa. thus, the single currency has gained an important international dimension. the number of principal actors in the international financial system has now been reduced to three the usa, europe and japan. at present, europe is still trying to find its own, distinguished voice in international financial matters. but it is a fact even now that the introduction of the euro has had a stabilizing influence in the international financial system, as was successfully demonstrated in the wake of september 11, 2001. a number of indicators point to the growing international role of the euro : the euro segment of the global money market has risen to about 25 %. in the bond market, too, the euro plays a crucial role in fostering a deeper and more liquid market. the introduction of the euro paved the way for issuers to access a broader base of investors. investors too have gained access to a wider spectrum of investment opportunities. the euro ’ s share in net issuance currently amounts to 39 %. regarding its use as an official reserve currency, the euro has already attained the same weight as the predecessor currencies. within the euro area, monetary union has kept member countries from being exposed to harmful intraeuropean exchange rate tensions

##uaring ahead of the holidays in the northern hemisphere ; developments in specific emerging markets ; and higher returns now being possible in developed markets. it is too soon to judge the possible extent and effects of this sell - off – hopefully it would not disrupt financial markets in affected countries. however, having painted such a rosy picture, one cannot help but also highlight the risks and uncertainties that currently face the world economy and financial markets. at the forefront of everyone ’ s minds is most definitely the behaviour of the oil market. it remains to be seen for how long the general level of inflation can withstand the current high oil prices, and recent comments by prominent central bankers the world over seem to point to increased concern about the impact of oil on inflation, going forward. south africa is no exception, and in the most recent statement of the monetary policy committee of the sa reserve bank, rising international oil prices were once again highlighted as a key risk for inflation. the effects of the very high oil prices are likely to increase if inflationary expectations start to react. secondly, the world remains plagued by geopolitical uncertainties in the middle east and other parts of the world. partly as a result of these tensions, combined with inflationary concerns starting to increase, the gold price has recently surpassed a series of 25 - year highs, trading above usd730 per fine ounce early in may 2006 before retracing to just below usd700. there are some in the market whose forecast is that the gold price might test the usd1000 per ounce level in the near term. a third risk to the global economy is substantial further increases in interest rates. despite various degrees of monetary policy tightening in industrial countries during the past two years, monetary conditions can still be described as relatively accommodative. any exogenous or endogenous factors that could lead to a sharper increase in rates could well threaten the strength of the global economy. in such circumstances, volatility and risk premiums are likely to pick up. a fourth concern that again surfaced recently was the issue of rising global imbalances, and in particular the widening current account deficit in the us, combined with significant surpluses in most of the asian countries, in particular china. the fact that the us has to date found it relatively easy to finance the current account deficit through capital inflows has to some extent obscured the risks associated with this imbalance. however, the us current account deficit, which according to the latest numbers amounted