the socially vulnerable or minors, allows people to participate in society and, for example, allows children to learn how to handle money. in particular, when socially vulnerable people use cash, they face none of the barriers involved in applying for a credit card or, despite all their efforts, opening a current account. cash as legal tender provides security and protection cash “ always works ”. if alternative means of payment are no longer possible, e. g. because of a power or network failure, society can continue to function because of cash – in any case as long as the atms work or we manage, for example, in times of crisis to replace this infrastructure unbureaucratically. cash thus clearly enhances the resilience of society and ensures its functioning particularly in critical periods. many people use cash to buy everyday items, but not to pay larger sums. they cleverly weigh up the risks, burdens and benefits, such as protecting their privacy by making anonymous cash payments. the statistics show that “ average ” europeans have about €1, 600 net at their disposal every month. once rent and other fixed costs have been deducted, many people evidently carry out “ cash - suitable ” transactions above all. of course, “ shoe leather costs ” play an important role in people ’ s calculations, such as the distance from an atm or the acceptance of euro cash abroad. people who frequently have to handle large sums of money or who, for business or private reasons, often ( have to ) stay in other currency areas may find it practical to make their payments with a card and not to have to go first to an atm or a bureau de change. but that certainly doesn ’ t mean that these people – especially here in germany – would be willing to give up their cash. what is the role of the ecb and the eurosystem in protecting the legal tender? the ecb, as the european institution at the heart of the eurosystem, has a particular role to play, and not just in terms of monetary policy in general. as the central bank which authorises the issuance of euro banknotes, 8 the ecb is also responsible in particular for protecting the status of 2 / 5 bis central bankers'speeches euro cash as the sole legal tender. this includes guaranteeing the existence of euro cash and its usability as legal tender. in fulfilling these tasks, the ecb ultimately ensures that people can go about their lives, with their fundamental rights protected, using euro

##ent behaviour. concern about this has been expressed in connection with our new omt programme, under which we could purchase potentially unlimited amounts of sovereign bonds. by easing market pressure on governments, it is argued, ecb interventions could lead to a weakening of fiscal consolidation and reform efforts. the focus of my remarks tonight is this trade - off between insurance and incentives. i am going to start from the general principle of committing to provide partial insurance, which arises from the literature on microeconomics. i will then illustrate how our omt programme and also the parallel plans for a banking union can be interpreted in the light of this principle. 1. the basic principle : how to commit to partial insurance? the trade - off between insurance and incentives, or equivalently, between ex post efficiency and ex ante efficiency is a recurrent theme in microeconomics. i will argue that this trade - off is a useful framework for thinking about the challenges we face in the euro area. it is a widely studied topic, so we have been able to draw on and adapt existing insights when addressing those challenges. why is there a trade - off? why is ex post efficiency not the same as ex ante efficiency? the reason is that we all react to the circumstances in which we operate. if circumstances change, so does our behaviour. thus, policies that ensure ex post efficiency are not necessarily efficient ex ante, because people react to those policies by altering their own behaviour. ex post and ex ante efficiency generally do not overlap. as so often in economics, the theme can be traced back all the way to adam smith ’ s “ the wealth of nations ” in 1776. he describes how tenants underinvest in the land they do not own. around the same time, in 1740, a version of the free - rider problem ( a closely related incentive problem ) appears in david hume ’ s “ treatise of human nature ” ( see j. - j. laffont and d. martimort, “ the theory of incentives ”, princeton university press, 2002 ). bis central bankers ’ speeches allow me for a moment to be somewhat schoolmasterly and use the example of car insurance to illustrate the basic trade - off. car insurance is obviously desirable ex post, since it is not optimal for people to bear the consequences of a car accident by themselves. we are all more or less risk averse and feel much better when we have such car insurance. without it, some of us would