to mind. the loonie has been floating for the past several decades, and it has served canada rather well. more generally, there is nothing to be gained in having more than one currency for transaction purposes. much of the double coincidence of wants gets lost if several currencies circulate simultaneously. “ dollarization ” only occurs in those countries where hyperinflation threatens. this is not about to happen in switzerland, which has the best record of price stability in europe! the fear of losing our monetary independence was misplaced as well. over the past five years the snb has demonstrated that it can act decisively and independently, often well before the ecb. given its openness, switzerland was badly affected by the world slowdown. the situation was made worse by the fact that our main trading partner, germany, was itself severely hit, and to compound our difficulties, the worldwide capital overhang had a very adverse effect on our exporters, many of whom are specialized in the production of capital goods. special circumstances require special action. from march 2001 to april 2003, the snb cut interest rates aggressively, lowering the target range for our reference rate, the three - month libor, by 325 basis points, from 3. 5 % to just 0. 25 %. if anything, the differential between swiss and euro interest rates has slightly widened, putting all fears of a rapid loss of our interest rate advantage to a rest. what about the stability of the external value of the swiss franc? here, i must say, our fears proved not just to be unfounded, but the reality turned out to be even more favourable than we could have hoped for. the exchange rate of the swiss franc against the euro ended up being much steadier than expected, in fact even steadier than it used to be against the german mark, not to mention the french franc and the italian lira. over the past five years, the real exchange rate has moved within a relatively narrow band little more than five percentage points wide. except for the post - september 11 period, when the swiss franc appreciated markedly, the external value of the franc has largely reflected economic fundamentals. in fact, even the post - 9 / 11 safe - haven effect was relatively mild compared to what we experienced in the past, during the seventies and the eighties, for instance. 4. a new international monetary order i believe that one could make the case that the introduction of the

mean for us is a higher inflation rate for some time, together with a collapse in asset prices and in domestic gross capital formation. a cocktail of higher interest rates and our high wage structure would be highly detrimental to our competitiveness in export markets. the third fear that was sometimes expressed, although here i must say i was rather sceptical myself, was that the euro could eventually make the swiss franc obsolete. with many of our trading firms billing and paying their suppliers in euros, there might be a tendency for them to adopt the euro more generally for their accounting as well as for their domestic transactions. some people even went as far as predicting that before long wages would be paid in euros. shops, hotels and restaurants would rapidly be forced to accept euros, so that visitors from abroad would no longer see the need to convert their euros into francs. eventually swiss consumers themselves would follow suit, so that switzerland would be de facto integrated into the eurozone. more than national pride would be hurt by such an “ euroization ” of the swiss economy. for one thing, such a development would entail the loss of seigniorage income. with a monetary base of about 40 billion francs ( 25 billion euros ), that is about 5, 700 francs ( 3, 500 euros ) per person, seigniorage in our case is far from trivial. but much more seriously, the loss of monetary autonomy caused by a displacement of the swiss franc by the euro would prevent the central bank from creating liquidity in case of need. to a large extent, the fears that we had reflect the more fundamental debate about fixed versus flexible exchange rates. which foreign exchange regime is appropriate for a given country at a particular time? although this view is not universally shared, many economists argue for a polar solution : either purely flexible exchange rates, or rigidly fixed ones. intellectually, i tend to share this view, except that i would like to take it one step further : either purely flexible exchange rates, or monetary union. rigidly fixed exchange rates do not constitute a polar case. in fact, they accumulate many shortcomings. thus, fixed exchange rates have never been known to be fixed for very long. fixed exchange rates are fixed until the day they change, and when they do change, they often do so brutally in an atmosphere of crisis, of pain, and of tears. no, i believe that if one really aims at exchange rates that are irrevocably fixed, then