, and believing in the fairly widespread myths may lead people to avoid them altogether. that would be a mistake. it is true that the tremendous growth of the derivatives market and the reports of major losses associated with derivative products have created a lot of confusion about those complex instruments. derivatives have bis central bankers ’ speeches been considered as the villains in the collapse of the global financial system. in fact, companies and countries that bought derivatives in the form of mortgage - backed securities, credit default swaps and synthetic collateralized debt obligations as insurance, discovered, to their dismay, that the insurance cover was only as good as the counterparty at the other end of the contract. some were of the view that the problem was not so much with the exotic nature of some of the products, or their volume, as with the fact that the derivatives were traded over the counter, that is, outside a transparent and regulated exchange. that is how the value of otc derivatives reached ten times global gdp. others blamed the lax regulation of financial derivatives and perverse incentives. this is why there are proposals on the table on either side of the atlantic for the better regulation of all derivatives trading. essentially what derivatives do is to hedge risks by reducing future uncertainties and managing them more effectively. derivatives help to improve market efficiency because risks can be isolated and sold to those who are willing and able to accept them at least cost. but using derivatives requires a firm understanding of the tradeoff of risks and rewards, and the decision to use them should be driven by the participant ’ s strategic objectives. it is important that all users understand how their contracts are structured, the unique price and risk characteristics of those instruments, and how they will perform under stressful and volatile economic conditions. derivatives users should establish a framework for effectively managing and controlling derivative activities. the dark side of derivatives is that, if they are used improperly or without a plan, they can inflict serious losses. so without a clearly defined risk management strategy, the use of derivatives can be dangerous. when used wisely, they can increase shareholder value by providing a means to better control a firm ’ s risk exposures and cash flows. a firm should be clear about the risks it is comfortable with, and the risks it does not want. now that we have an exchange where currency futures can be traded, new opportunities are opened to investors. besides offering better price discovery and lower transaction costs, the futures market is a major financial hub which provides an outlet for intense competition among

its voice heard as an advocate for a culture of stability. i can reassure them that it will. we will contribute our expertise and our convictions to the discourse with confidence. however, making a case with confidence does not mean disparaging the validity of others. i am looking forward to fruitful discussions on the ecb governing council and to working with you, christine. as a long - standing member of the market operations committee, i always enjoyed working together with colleagues from the eurosystem and benefited from a variety of views and experiences. we are all striving to achieve our common goal of safeguarding price stability for the people of the euro area. likewise, i am looking forward to working together with the other members of the bundesbank executive board as well as with my colleagues throughout the entire bundesbank : in the branches, the regional offices and at central office. and i am already looking forward to getting reacquainted with old friends as well as getting to know new faces. together, we can achieve a great deal. 5 / 5 bis central bankers'speeches