financial developments, for example the ratio of total market capitalisation ( including bank assets ) to gdp. chart 5 shows that the size of the equity and debt securities markets in the euro area was about 56 % of that of the united states, reflecting the greater reliance of euro area firms on bank financing. other indicators confirm that the depth and liquidity of the us financial markets are greater than that of the euro area. at the same time, the efficiency of the euro area ’ s financial system has improved significantly since the adoption of the euro. indeed, the euro has contributed to the integration of financial markets in the euro area, which has increased their liquidity and efficiency, and made the euro more attractive to international investors. policy initiatives by the european commission and the ecb aim at fostering further integration and the development of the euro area ’ s financial system, which will support the international use of the euro and will have positive feedback effects on the development and efficiency of the euro area ’ s financial markets. thus, the further integration and development of the euro area financial system and the internationalisation of the euro are processes that can be expected to be mutually reinforcing. the process of financial globalisation and the rapid integration of emerging markets into the world economy, as illustrated in chart 6, can also be expected to foster the development of european financial markets and, other things being equal, could support the international use of the euro. the abovementioned arguments should not lead to the conclusion that the expected positive effects of a number of determinants of the euro ’ s international role are likely to lead to a significant and abrupt increase in the euro ’ s relative importance as an international currency. there are other determining factors, and the effects of some of them imply that changes in the international use of a currency are likely to be very gradual. let me point to two such factors. first, as historical experience suggests, inertia and the advantages of incumbency in various markets imply that change in the international role of a currency is likely to be very gradual. network externalities favour the use of one currency for certain financial and real sector transactions. for example, the us dollar serves as a vehicle currency in foreign exchange markets, with most trades executed via the us dollar, even when neither of the two currencies exchanged is the us dollar, mainly due to the superior liquidity and thus lower costs involved in trading against the us dollar than for other currency pairs. similarly, prices in international commodity

largely as a result of these privatisations, the percentage of the population in australia who are now direct shareholders has risen sharply and is exceptionally high by world standards. the proportion who hold shares directly is 41 %. i have not got a table of comparisons with me, but i believe this figure is now about as high as in the united states. if we added to the number who directly hold shares, the number of people who voluntarily hold shares through equity unit trusts ( or mutual funds, to use us terminology ), the number would go to about 54 %. and, of course, if we added in those who contribute to an accumulation pension fund, exposure to shares would be almost universal. table 4 : consumer price inflation average annual rate ( over 1990s ) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - spain 4. 0 united kingdom 3. 5 sweden 3. 0 united states 2. 9 germany 2. 5 netherlands 2. 4 norway 2. 4 ireland 2. 3 australia 2. 3 switzerland 2. 2 belgium 2. 1 canada 2. 1 denmark 2. 1 finland 2. 0 france 1. 8 new zealand 1. 8 japan 1. 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - source : oecd can i turn now to inflation? if we look at an international ranking of inflation rates over the past decade comparable to the one i showed for real gdp growth, australia finishes in the middle of the field with an average inflation rate of 2. 3 % per annum ( table 4 ). this is a huge improvement on previous decades, but, of course, virtually every country has also shown a significant improvement. there are a number of factors behind this improvement, but the one i would like to mention today is our monetary policy regime. like a number of english - speaking countries - the uk, canada, new zealand - australia has a monetary policy regime which is based on the trilogy of an inflation target, an independent central bank and a floating exchange rate. our inflation target is not all that different from that of the uk in that we aim for an average inflation rate of somewhere between 2 and 3 % over the long term, recognising that it could go above or below that range from to