, the gradual opening of markets is the main cause of the problems. but that view is too short - sighted. the main causes are the misguided or at least risky policies pursued by the countries in question. essentially that also applies to the countries affected indirectly. their own internal weaknesses make them vulnerable. it is also true that the global financial markets, with their tendency towards short - termism, are sometimes a factor in making the magnitude of the potential reversal so great. if a country then loses the confidence of investors because of a political error, it is punished hard - sometimes too hard, at least for a time. ii the outbreak of the crisis in some asian countries poses some new questions because some of the key fundamentals were quite sound : in many cases the public fiscal balance was in surplus or at least was not in excessive deficit. unemployment was fairly limited. the monetary policy stance was mostly quite restrained, and inflation remained moderate for a long time. for quite a while current account deficits were financed by capital imports apparently unproblematically. some indicators even showed an exceptionally positive trend. in particular, the saving and investment ratios were comparatively high, and real growth in this region was stronger than elsewhere. until a short time ago, the title of such a symposium might well have been “ the asian economic miracle ”. on closer inspection, however, it can be seen that the economic successes of recent years already carried the seeds of the later crisis : massive short - term capital inflows, asset inflation in the equity and property markets, in some cases a misallocation of capital, currency appreciation in real terms, decreasing competitiveness and growing current account deficits. these symptoms also pointed to internal weaknesses and political mistakes : for example, an over - rigid pegging of the exchange rate to the dollar and inadequate efficiency of the domestic financial sector. certainly, there are good reasons for pegging an exchange rate to another currency. credible pegging to a stable anchor can help to reinforce internal discipline. and it can help to lower the risk premium demanded by investors. but there are other considerations which can become a danger if the exchange rate is pegged too rigidly : they can make it hard to pursue the objective of internal monetary stability. interest rate policy becomes a hostage to the exchange rate, for - given strong capital inflows - an interest rate rise often has an opposite impact on monetary expansion than the one intended. a persistent stability gap can then arise in comparison with the anchor

became the official key currency in 1944. it served national central banks as a benchmark currency, an intervention currency and a reserve currency alike. following the collapse of the bretton woods system, and given the domestic stability problems in the united states, the dollar forfeited that formal function. even so, it retained a leading role. as before, the united states remains the world ’ s leading industrial and trading nation. that is why dollars are so highly acceptable worldwide. moreover, the magnitude of the us financial market ensures a wide variety of investment options. the decontrol of exchange rates, the increasing freedom of capital movements and diverging stability records are the reason why other currencies, such as the deutsche mark, have been able to establish themselves alongside the dollar - - albeit on a far more modest scale. after all, currencies, too, compete to an increasing extent for the favour of the international transactor. besides economic significance, a dynamic economy and a sufficiently large economic area ( duly integrated in world trade ), it is primarily monetary conditions that must be met. an international key currency must be able to exhibit a successful stability record over a lengthy period. while the markets may forgive short - lived slips, long - term failures are penalised. the markets ’ memory often stretches back a surprisingly long way. they heed the faintest signs that a currency ’ s stability may be at risk. it is that which makes the credibility that the responsible monetary authority enjoys all the more important. it has transpired that such credibility increases with the degree of independence from government instructions. if a central bank has to serve two masters, namely monetary stability and the promotion of economic activity, it usually comes to grief in both areas. then its credibility is compromised for a long while. iii. the introduction of the euro marks a watershed, not only for the monetary situation in europe but also for the global monetary system. little more than a year before its planned introduction, the world ’ s financial markets are now wondering : will the new currency be strong or weak? can it become a serious alternative to the dollar as a reserve, investment and transaction currency? in europe, great economic and political hopes are being pinned on the euro. the old continent is to be strengthened as a global economic power, european integration is to be fostered. it is hoped that it will be possible to cope more effectively with the challenges posed by globalisation. moreover, many people are hoping that the euro will constitute