mr repse gives a short speech on monetary policy in latvia and exchange rate strategies speech given by mr einars repse, governor of the bank of latvia, at the ecb seminar on the accession process, held in helsinki on 11 november 1999. * * * ladies and gentlemen, accession to the european union ( eu ) is a strategic aim of latvia, and we see joining the european monetary union ( emu ) as an integral part of this process. we strongly hope that the european council will accept the commission ’ s recommendations and a decision will be made to commence accession negotiations with latvia in year 2000. the bank of latvia will be well prepared for these negotiations, as we have already established our status and policies with a perspective of future membership in the eu. the bank of latvia enjoys a high degree of independence, fully compatible with the requirements of the emu. price stability is clearly defined as the main objective of the bank of latvia, and its monetary policy instruments and procedures largely correspond to the monetary policy framework used within the european system of central banks. and we are implementing a very conservative monetary policy, which, as we believe, is in line with the policy principles of the european central bank ( ecb ). since 1993, latvia has been using the exchange rate based stabilisation programme. in february 1994, the bank of latvia pegged the national currency to the sdr basket. we based our decision on the belief that a fixed exchange rate regime, if it is durable and credible, reduces uncertainty, eliminates currency risk and provides businesses with a sound basis for planning and pricing. it fosters investment and international trade, which are of a particular importance for the restructuring of a small, open economy like latvia. the bank of latvia has indeed ensured that the exchange rate arrangement is credible and durable, and the latvian economy has benefited from the stability. inflation has declined to a level consistently below 3 %, there has been considerable growth in exports, especially to the eu countries, and it has contributed to the strong gdp growth over the last years. the achieved macroeconomic stability allows us to set the target of fulfilling the nominal convergence criteria at the time of latvia ’ s accession to the eu. pegging the national currency to the sdr rather than to a single currency, the bank of latvia has made the lats fluctuate less against any individual currency than it would otherwise. furthermore, the structure of latvian foreign trade by settlement currencies largely corresponds to the composition of the sd

article 105 ( 5 ) ). in view of their institutional competences the ncbs have developed the capabilities, skills and toolkits needed to analyze the stability of the financial system. the new board must, from its inception, be firmly anchored to the ecb in order to benefit from the latter ’ s well - established reputation and the direct contribution of the specialist technical and operational know - how needed to monitor the financial stability of the eu area. appointing the president of the ecb as chairperson of the esrb would help to guarantee the adoption of a consistent approach in pursuing monetary stability and safeguarding the stability of the system. the legal basis for the esrb will be article 95 of the treaty, but it would be advisable to consider appealing also to article 105 ( 6 ), under which the ecb can be assigned specific tasks in respect of prudential supervision, so that the institutional nature of the link between it and the esrb and the modalities of the ecb ’ s involvement in the latter ’ s activities may be established clearly and with the appropriate guarantees. ( ii ) linkage with micro - prudential supervision. macro - prudential supervision by the esrb can be effective only if the analyses and assessments of the risks to financial stability serve to orient the priorities of micro - prudential supervision on intermediaries and financial markets. coordination between the esrb and the esas needs to be very strong even in the analysis phase, so as to ensure a sharing of approaches and speedy and efficient exchange of information. in particular, risk assessment should be based on the extensive direct involvement of the colleges of supervisors. if the aim is to have the results of macro - prudential analyses used in the supervision of financial groups, the colleges must be able to contribute actively to identifying the main risk factors and the policy options. on the other hand, the esrb must be in a position to acquire the micro - prudential information necessary for analysis of the risks, with a special focus on large banks. the exchange of information between the european supervisory authorities and the esrb should be governed by a protocol of cooperation, so as to ensure observance of the rules on the confidentiality of supervisory data. when highly confidential information is involved, it could be sent in anonymous form. ( iii ) effective macro - prudential instruments. the esrb ’ s main instrument will be the power to send recommendations to the competent authorities. separation between the entity