willem f duisenberg : the euro - a new currency for europe dinner speech delivered by dr willem f duisenberg, president of the european central bank, at the bank of thailand on 19 december 2000. * * * ladies and gentlemen, distinguished guests. may i first say that it is an honour to be invited to say a few words to you this evening about europe ’ s new single currency, the euro. i have to admit that one would not normally think of a currency as being a particularly likely or interesting subject for a dinner speech. for the euro, however, i think i am correct in saying that this is not the case. indeed, the euro is a currency quite unlike any other. it is not a national currency. instead it is a supra - national currency created by a monetary union of 11, soon to be 12, sovereign member states creating the second largest monetary area in the world. it is also a very new currency, still less than two years old. it does not yet circulate in the form of banknotes and coins. not surprisingly, therefore, the euro does indeed attract a great deal of public attention. it is notable, however, that different observers seem to perceive the euro in very different ways. some focus their attention almost exclusively on the exchange rate, overlooking the fact that the ecb ’ s principal aim is to maintain price stability and not a fixed exchange rate. others seem to consider the euro purely in terms of a political or economic experiment. they fail to notice that it is already a fully functioning single currency. this only serves to convince me that, even two years after its introduction, there is still a need for the euro to be explained to the public at large. and, this is perhaps all the more so outside europe where understanding of european integration and policy - making is, not surprisingly, more limited. therefore, i very much welcome this opportunity to say a few quite general words to you about what the euro is, how it works, and what it means, both for the euro area and for the world at large. * * * let me first say that one should never try to understand europe ’ s new currency in isolation or as a currency which was merely introduced on 1 january 1999. in fact, the euro is just one, albeit an important, part of the process of creating an economic as well as a monetary union in europe. this process began already a decade ago. similarly, this " economic and monetary union

" is itself part of a much broader process of european economic and political integration. therefore, in order truly to understand the euro one should in fact consider it first in the context of the european integration process that began already five decades ago. from the beginning, the purpose of this process was to bring the countries of europe and their economies closer together and, in so doing, create an area of peace, prosperity and stability. i suppose these motivations are by no means dissimilar to those which lie behind the various other regional links which have since been formed in other parts of the world, including here in asia. the european experience in working towards this goal has been one of gradual progress, even though with numerous ups and downs. nonetheless, the main objective remained ever intact. as economic integration progressed further and further, as we overcame ever more subtle barriers to trade, it became increasingly apparent that one substantial barrier to the creation of a truly pan - european economy remained. i refer of course to the persistence of exchange rate fluctuations which resulted from the existence of separate national currencies governed by independent monetary policies. in short, european policy - makers had to face up to the fact that, over extended periods of time, you cannot simultaneously maintain free trade, unrestricted capital movements, fixed exchange rates and independent monetary policies. a choice had to be made and ultimately the time arrived when most european countries deemed it more advantageous to firm up the european " single market " than to maintain their national currencies. * * * i should add that, beyond this more fundamental motivation, there were other important developments which probably influenced the decision to adopt a common currency. the end of the cold war set new political parameters for the integration of western europe. regional integration and the creation of a large economic area have also come to be seen as even more necessary in order to prosper in an increasingly globalised world economy. from the point of view of a central banker, the evolving consensus as to the appropriate role of monetary policy and of a central bank was particularly important in laying the foundation for a viable single currency. moreover, an increasing awareness that using monetary policy directly to stimulate growth and employment was not working and was even proving counterproductive, might have strengthened the perception that, in an already deeply integrated europe, there was little to lose from giving up autonomous monetary policies. by contrast, a good deal could be gained by removing exchange rate fluctuations and by establishing an independent european central bank with a clear objective to