and medium - sized enterprises have seen borrowing costs from banks somewhat reduced. all of this should support investment. target balances, which provide a powerful summary indicator of fragmentation, have declined by almost 300 billion euros or 25 % from their peak. the costs of protection against see, for example, cukierman, a., 2013, monetary policy and institutions before, during, and after the global financial crisis, journal of financial stability, in press, and curdia, v. and woodford, m., 2011, the centralbank balance sheet as an instrument of monetary policy, journal of monetary economics, 58 ( 1 ), 54 – 79. bis central bankers ’ speeches risks of deflation have fallen from peaks twice their long - term average last summer to slightly below average now2. overall, monetary policy has regained steering capacity, which had become lost for large parts of the euro area in mid - 2012. this is an important positive development. let me turn now to the limitations of monetary policy. here i see two possible dimensions. the first is positive and refers to the effectiveness of central bank actions at the margin – for example, when interest rates are close to zero. the second is normative and refers to the constraints imposed on us by our mandate and to the fears that boundaries between central bank policies and other policies might become blurred. i will not dwell on the first dimension because i do not think that we are materially challenged in our ability to deliver our objective of price stability by the low level of interest rates. looking back, despite extraordinarily testing economic circumstances, inflation in the euro area has remained on the whole consistent with the ecb ’ s objective of below but close to 2 %. looking forward, eurosystem staff project annual hicp inflation at 1. 4 % in 2013 and 1. 3 % in 2014, but medium - term inflation expectations remain anchored in line with our definition of price stability. one reason why inflation expectations have remained broadly stable is that we – and other major central banks around the world – have prevented the materialisation of deflation risk by adopting both standard and non - standard measures as and when necessary. in the euro area, one such non - standard measure was the introduction of the outright monetary transactions ( omt ) programme last year, the stabilising effects of which are widely recognised. there are numerous other measures – standard interest rate policy and non - standard measures – that we can deploy and that we will deploy if circumstances

induced them to change their ways just in order to have these marks erased again and thus - in their perception - their wealth restored. friedman concludes that this example illustrates “ how important appearance or illusion or “ myth ”, given unquestioned belief, becomes in monetary matters. our own money, the money we have grown up with, the system under which it is controlled, these appear “ real ” and “ rational ” to us. yet the money of other countries often seems to us like paper or worthless metal, even when the purchasing power of individual units is quite high. ” the euro has been in existence for almost two years now. it does not come in the form of stone wheels. in fact it does not yet have any concrete and tangible expression at all. until the introduction of euro banknotes and coins at the beginning of 2002 it will essentially remain a “ virtual ” currency, which may perhaps seem as remote, unfamiliar and unnatural in the eyes of the public as the stone wheels described by friedman. this lack of tangibility and visibility of the euro in part accounts for the particular challenges that the euro faces in winning the hearts of the general public as a new currency which has yet to replace the familiar and trusted national notes and coins in circulation. as friedman ’ s example shows : symbols may be important in monetary matters. at the same time, irrespective of the particular symbols and media to which money functions are attached - be it stone wheels or computer chips - money is ultimately a question of trust. the euro ’ s current existence as a “ non - tangible currency ” perhaps makes this point - which is valid for any fiat money - more plain and obvious. no matter what specific medium of exchange a society might wish to adopt, the efficiency of money in facilitating economic transactions via the price mechanism depends on its stability as a unit of account, i. e. as a common financial denominator, for the economy. in order to hold and accept money economic agents must not only be confident that money remains accepted as a medium for exchange, but also be confident that money will retain its value over time, thereby ensuring that price signals can provide accurate guidance for markets to function efficiently. in contrast, if money loses its value, this also undermines its usefulness for exchange. indeed in periods of very high inflation currency tends to be replaced, for example, by cigarettes or other goods - or, perhaps, “ bads ” - in everyday transactions. an inflationary currency will simply cease