" is itself part of a much broader process of european economic and political integration. therefore, in order truly to understand the euro one should in fact consider it first in the context of the european integration process that began already five decades ago. from the beginning, the purpose of this process was to bring the countries of europe and their economies closer together and, in so doing, create an area of peace, prosperity and stability. i suppose these motivations are by no means dissimilar to those which lie behind the various other regional links which have since been formed in other parts of the world, including here in asia. the european experience in working towards this goal has been one of gradual progress, even though with numerous ups and downs. nonetheless, the main objective remained ever intact. as economic integration progressed further and further, as we overcame ever more subtle barriers to trade, it became increasingly apparent that one substantial barrier to the creation of a truly pan - european economy remained. i refer of course to the persistence of exchange rate fluctuations which resulted from the existence of separate national currencies governed by independent monetary policies. in short, european policy - makers had to face up to the fact that, over extended periods of time, you cannot simultaneously maintain free trade, unrestricted capital movements, fixed exchange rates and independent monetary policies. a choice had to be made and ultimately the time arrived when most european countries deemed it more advantageous to firm up the european " single market " than to maintain their national currencies. * * * i should add that, beyond this more fundamental motivation, there were other important developments which probably influenced the decision to adopt a common currency. the end of the cold war set new political parameters for the integration of western europe. regional integration and the creation of a large economic area have also come to be seen as even more necessary in order to prosper in an increasingly globalised world economy. from the point of view of a central banker, the evolving consensus as to the appropriate role of monetary policy and of a central bank was particularly important in laying the foundation for a viable single currency. moreover, an increasing awareness that using monetary policy directly to stimulate growth and employment was not working and was even proving counterproductive, might have strengthened the perception that, in an already deeply integrated europe, there was little to lose from giving up autonomous monetary policies. by contrast, a good deal could be gained by removing exchange rate fluctuations and by establishing an independent european central bank with a clear objective to

way to meet them. second, we provide liquidity, both on a routine basis and in times of system - wide financial stress. an appropriate amount of liquidity helps to keep markets operating smoothly, and is thus vital to the stability and efficiency of the financial system. on a routine basis, the bank provides overnight credit to financial institutions to cover any temporary shortfalls that arise in the payments system. these overnight loans help to stabilize the system, and they reduce the need for participants to hold large precautionary balances at the central bank. from time to time, there are shocks that can stress the whole financial system – a stock market crash, for example, or a terrorist attack – and these shocks can increase the demand for liquidity. in such a situation, the bank of canada can increase the supply of liquidity to support the smooth functioning of the system, and / or indicate publicly that it is willing to provide liquidity as needed. for example, following the terrorist attacks of 9 / 11, the bank increased the supply of liquidity in the payments system to $ 1 billion from the then - typical $ 50 million. third, as the country's " lender of last resort, " the bank of canada can step in to provide " emergency lending assistance " to a solvent bank ( or to other deposit - taking institutions covered by our policy ) in the event of a serious liquidity problem. this kind of lending is aimed at preventing a loss of confidence in a solvent financial institution, as well as any spillover effects. and fourth, we promote the stability and efficiency of the canadian financial system by working in close co - operation with federal and provincial regulators, and public sector partners, and as a member of international bodies to strengthen the financial system worldwide. one of the main activities here is monitoring the domestic and international risks that have a bearing on the stability of the financial system. we communicate our research in speeches, in reports, and in our financial system review. i should also mention that as " fiscal agent " to the federal government, the bank has a number of other responsibilities that also have an influence on stability and efficiency. for example, we provide policy advice to the government on how to fund the federal debt in a stable and low - cost manner. related operations that we conduct on behalf of the government also tend to support the stability and efficiency of fixed - income markets. now, how well are we doing with this objective? well, i said that the objective is