sabine lautenschlager : interview with deutschlandfunk interview by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, with deutschlandfunk, conducted by mr klemens kindermann and broadcast on 30 december 2018. * * * ms lautenschlager, the euro is now 20 years old. on 1 january 1999 it became legal tender for 11 out of 15 eu member states, initially in electronic form and then as cash as of 2002. germany has participated from the outset, alongside countries such as france and italy. has the euro been a success? yes, the euro has definitely been a success, and indeed a success on an economic level. many people merely associate the euro with being able to travel more easily to other countries without having to exchange german marks for french francs or spanish pesetas, but it has most especially had economic benefits for our business enterprises and our firms. we are now truly an export - driven country. trade within the euro area has increased and, thanks to the single currency, firms find it much easier to estimate the value of the payments owed to them. they do not run any exchange rate risk. but the euro has also been a success in political terms. we should not forget that the eu, and therefore the euro, has also been immensely important in preserving the peace that we have enjoyed in the euro area, in the eu, for the past 70 years. and since we are stronger together, and as part of the eu and the euro area are able to play a greater role in the global arena, also on the political front, we can do more to ensure peace for the political environment. so, in my view, the euro is a huge success. according to a survey, even now around a third of german people still mentally convert german euro prices to german mark, at least for larger purchases. can you understand that some germans are still pining for the d - mark? i ’ m not so sure that this mental conversion really is a sign that people are missing the d - mark. especially for the older ones among us, it is simply a better way of estimating the value. some people also do it out of habit. so i don ’ t think that germans really want to have the d - mark back. i ’ ve heard that more than 80 % of the german population have a very positive view of the

##on woods system finally broke down in 1973, total foreign reserves of all countries amounted to about 2½ per cent of annual global gdp. west germany ’ s reserves were about 7 per cent of west german gdp. today, total reserves in the world amount to the equivalent of about 15 per cent of global gdp, up from 10 per cent only five years ago. china ’ s reserves are close to 50 per cent of chinese gdp. many other asian countries have equivalent ratios around 30 per cent or more ; while, in latin america, foreign exchange reserve holdings are typically in the 10 – 15 per cent range. 10 there are numerous reasons behind this build up. the very high levels of energy prices in recent years have pushed up the reserves of oil producers, and this accumulation may have some logic as they seek to spread over a long period the income gains accruing from a finite resource. the reserves of many asian countries have risen to much higher levels after the 1997 crisis, as a form of insurance against capital flow reversal. indeed the imf advised this after the crisis, advice that has been taken to heart perhaps a little more than the fund intended. one can understand the desire for self - insurance, and particularly as those asian countries that had imf programs in the late 1990s felt the conditions for mutual insurance – through the imf – were very onerous. but the self - insurance provided by large holdings of reserves is costly, especially in the low interest rate environment we see in the major countries. trillions of dollars and euros held on behalf of the citizens of countries across asia ( and elsewhere ) are earning meagre returns and subject to increasing sovereign risk. this cost of selfinsurance is therefore becoming increasingly apparent, a trend that will surely continue as, inevitably, asian productivity levels continue to increase relative to the western countries and their real exchange rates rise. large centres of high saving with portfolios that are overweight in foreign assets whose return is low and whose value is highly likely to go down, measured in the currencies of the holders, amounts to something of a problem. attempts by those holders to exit this position quickly would be, to say the least, highly disruptive. they know that and that is why they do not attempt it, though there is a degree of diversification under way. to paraphrase the old line, if i owe you a few billion, i may have a problem. if i owe you a trillion or two, you may have a problem