##nated in sterling, euro, us and canadian dollars and issued by the uk, the us, germany, france, the netherlands and canada. that is a wider range of currencies than many of its international counterparts. for example, the ecb, federal reserve and bank of japan only accept securities denominated in domestic currency. the bank of england takes a broader range of currencies, to make sure that the narrow collateral set is large and deep enough for our monetary policy operations not to cause frictions in the sovereign collateral markets. the risk is offset by additional haircuts for foreign currency. the choices of which currencies and issuers were to be allowed in the narrow collateral set were decided principally on grounds of liquidity, not credit. a number of aaa issuers are assigned to the wider collateral set principally because their debt stock in issue is too small and / or too tightly held such that bid - offer spreads are relatively wide and / or more volatile in the secondary market. chart 3 shows a simple analysis of some of these factors. those changes were not a response to short - term conditions in some sovereign debt markets. rather, they form an important part of the transition to the bank ’ s long - term collateral policy, which was initiated following the october 2008 consultative paper on the bank ’ s market operations. the changes have expanded the universe of collateral eligible in the bank ’ s operations. and all the narrow collateral previously eligible will remain permissible under the new regime as either narrow or wider collateral. of course any drawdown is predicated on the counterparty being expected to remain solvent. this is in line with new fsb principles aimed at reducing the extent to which ratings are “ hard - wired ” into financial contracts. bis central bankers ’ speeches chart 3 metrics of sovereign credit risk, market liquidity and size ( a ) us france germany netherlands canada uk italy spain belgium austria australia sweden denmark finland norway 5 yr cds premia - 1 - 50 10yr bond bid - offer spread ( bps ) ( a ) the size of the bubbles is representative of the total amount of sovereign debt outstanding ( in sterling terms ). ireland and portugal are not shown, as their respective bubbles lie significantly to the north - east of the other countries identified in the chart. bubbles for cyprus, japan, luxemburg, new zealand, slovenia and switzerland are also not shown for clarity ( although they are accepted as wider collateral ). data as at 11 april. valuation the

all this gives monetary policy watchers - in financial markets and in the country at large - plenty of information by which to judge how we are doing, as well as to form their own expectations of future inflation and growth. how successful have we been in establishing a credible policy regime? a key test is what people expect about inflation, and in particular how those expectations react to unexpected economic news. if the regime is credible, people should expect inflation to stay close to target. and any shocks that affect inflation in the near - term should have no impact on inflation expectations further out, because people believe we will take whatever action is needed to return inflation to target. and by this measure, the current policy framework seems to be highly credible. there are those who claim that the mpc has never really been tested. in fact, the uk economy has been hit by a number of quite severe shocks over the past five or six years. international financial markets were convulsed by the asian financial crisis in 1997, the russian debt default and ltcm crisis in 1998, the 9 / 11 terrorist attacks, the enron and worldcom scandals in 2001 / 2 which dented confidence in corporate governance. around the same time, we also saw the bursting of the dot. com bubble and a slowdown in world activity. in the past decades, shocks like this would almost certainly have destabilised uk economic activity and inflation. that, after all, is what happened in the 1970s, when the price of oil quadrupled, and then again in 1979 when it more than doubled. since the late 90s however, medium - term inflation expectations - both as measured by surveys and as implied by financial asset prices - have barely budged. even this year, when oil prices rose by over 70 % to their peak in late october before falling back, and other producer input prices, including metals, have surged ahead, both surveys and financial asset prices show inflation expectations fluctuating around the mpcs inflation target, within a very narrow range. this remarkable de - coupling of inflation expectations from economic disturbances is the single most encouraging indicator that the new monetary policy framework is doing its bit to ensure continued economic stability. the importance of reliable information in monetary policy as in business, reputations that have taken decades to build can be lost with distressing speed : it only takes one banana skin to turn a confident stroll into a painful tumble. and while monetary policy may be a matter for experts these days, it is very far