their triadic task effectively in the new conditions of time and space. the new context has been created by the market, evolves in response to market forces and basically meets the needs of private interests. it is a creature of the market much more than of public authorities. partly because of this evolution central banks and governments have become much more respectful of market forces, even humble. they are much more conscious that wealth and welfare are created primarily in and by the market. they know that this is a much more powerful beast than its would - be tamer. the effectiveness of both the instruments on which central bankers rely - banking operations and regulatory provisions - have been eroded by the innovation in market practices and the blurring of national frontiers. to some extent this is healthy. market players are not there to serve us, we are here to serve the economy. yet, this downsizing of our role should not be carried too far. there is still a public interest to be promoted that private actions cannot be counted upon to serve. there are still grounds for being proud to serve the public interest and for claiming that central banks should have the means to achieve their ends. the fact that markets are powerful, global and fast - moving, while central bank operations and regulations are national, intrusive and burdensome, does not mean the monetary system can do without a central bank or a bank regulator. 11. basle, the bis, the meetings of the community of central bankers, from the governors down to junior officials, are where our profession has strived, largely successfully, to maintain the upper hand over the reality that calls for its public function. the task is being performed notwithstanding the wide diversity of national laws, traditions, operational practices and institutional constraints. i am a convinced institutionalist, because i believe that without a “ rule of law ” liberty and peace - the key prerequisites for economic activity - cannot survive for long. and my basic training, as well as much of my professional experience, have been in the european arena, which is a highly institutionalized cooperative system. in international monetary cooperation basle stands at the “ soft ” end of the spectrum no legal basis, no written terms of reference, no extensive minutes. mostly personal contacts and work based on the key words of banking and central banking : confidence, trust, credibility, confidentiality. 12. although i started to attend bis meetings well before this tower was constructed ( in the old hotel building of the centralbahnstrasse ),

fiat money and discretionary monetary policy. from a monetary angle, it was the consequence of the spread of deposit banking, which ultimately resulted in bank money accounting for the bulk of the money stock. runs on deposits can be seen as collapses of confidence about the stability of the rate of exchange between a unit of central bank money and a unit of commercial bank money. commercial banks had to have sound fundamentals if one - to - one convertibility was to be preserved hence, the need for bank supervision. in the short run interventions, i. e. lending of last resort, could be - and was - used to support the rate. but, as in the more familiar case of foreign exchange interventions, they were no substitute for sound policies ; credit provided too easily and too generously could even generate the risk it was meant to avoid ; today we call it moral hazard. the ambivalent relationship between supervising banks and lending to them ( surveillance and conditional lending, in imf language ) explains why there is no clear - cut answer to the question whether the central bank or a separate agency should be responsible for supervision. seven of the twelve basle committee countries have a separate agency, as against about 10 per cent of countries in the world as a whole. more importantly, even where this solution has been adopted, the centrality of the banking system, and of its money creation prerogatives, in the monetary policy transmission mechanism means that no central bank disregards the “ state of health ” of its banks or completely rules out lending of last resort in extreme circumstances. 7. the other, perhaps more important, change concerns the context of central banking. this can be seen in terms of both time and space. i began my career in a world of annual accounts and quarterly or monthly statistics, in which paper was the medium and mail the carrier. for the bulk of financial transactions the two parties, the intermediary, the currency of denomination, the relevant laws and courts, and the central bank all belonged to the same jurisdiction. and that jurisdiction was not only economic, as it included the political jurisdiction from which public institutions derive their legitimacy through the democratic process. this simple description never fully coincided with the state of the world, of course, but twenty - five years ago it was still a workable approximation. today, that is no longer true. the advance of data processing and telecommunications technology has been the most powerful single driving force of this change. but the low cost of transportation, the evolution