has pointed to a structural break around 2001 in the income velocity of money. in the euro area, the velocity of money seems to have now established along a new, faster declining trend. this is consistent with the hypothesis of a financial deepening in the economy, in particular an increase in financial wealth held by households. although the precise role of financial innovation in this process is still not fully understood, we should think of it in terms of both new players and new products : - in terms of new players, a plausible explanation is the rapid pace of expansion in the business of the so - called other financial institutions ( ofis ). these institutions include mutual funds as well as financial vehicles that buy and repackage loans that are securitised by banks. this activity reduces mechanically the growth of mfi loans to the private sector, while it is mirrored in the strong increase in ofis ’ deposits holdings, hence contributing to m3 growth. how much of this business will resist the current period of stress remains an open issue, but euro area monetary statistics have shown no sign of a major decline in these money holdings so far. - in terms of new products, the recent emergence, at least in france, of high - yield liquid deposits that are accessible via direct banking on the internet is very likely to have reduced the interest elasticity of money. of course, monetary policy, in the euro area and elsewhere, is not committed to react mechanically to monetary developments. nevertheless, to make the best use of the informational role of money, central banks must be able to filter out the noise that affects current monetary data, disentangling temporary factors from shifts in trends, supply shocks from demand shocks, with the latter possibly resulting from certain financial innovations in the context of globalisation. fully assessing the effects of financial innovation is thus a real challenge for monetary analysis. considering the practical difficulties ahead, this seems to me to offer a fruitful field for applied research. challenges for communication in times of stress : disentangling monetary and financial stability objectives financial market disruptions that may follow times of exuberant financial innovation may pose significant risks to macroeconomic stability. however, by their very nature and notably the highly non - linear dynamics they may trigger, such events, as well as the magnitude and speed of their macroeconomic consequences are uncertain. to meet its stability objectives in periods of financial instability, the monetary policymaker must probably put more emphasis on high - frequency financial markets information than he would otherwise do

committed to the successful implementation of sepa by the irish banking community. the irish payment services organisation, ipso, is the body with primary responsibility for ensuring the implementation of sepa. in this context i would like to take the opportunity afforded by this evening ’ s event to acknowledge publicly the efforts of pat mcloughlin, the chief executive of ipso ( and of his predecessor in this role, stewart mackinnon, now leading the sepa initiative at the european level as the secretary general of the european payments council ), the members of the ipso sepa implementation task force, and indeed all of their colleagues at every level in the ipso member banks, in preparing the irish banking community to meet the challenges posed by sepa ; in a few minutes, pat will speak about sepa from his own perspective. national payments implementation programme in fact, sepa is but one of a number of important developments currently in progress in the area of payments. a closely related project is the national payments implementation programme, or npip, an initiative involving the central bank, the department of the taoiseach, the department of finance, and ipso. the aim of npip is to develop a strategy for the future payments infrastructure in ireland that will be inclusive of, and deliver efficiencies to, all sectors of the economy. the active involvement of all of these constituencies is indicative of the importance being attached to developing ireland ’ s payments infrastructure. in addition, many other groups – representing, for example, consumers, the business community, and the wider public service – have already become involved in npip, and it is intended that others will be encouraged to participate as and when the need arises during the course of the project. there is significant common ground between npip and sepa, with the focus in each case being very much on electronic payments. the successful implementation of both npip and sepa will require the delivery of electronic payment methods that are : • safe and efficient ; • easy to use ; • accessible to everyone. other significant changes are also occurring throughout europe in the arena of payment and settlement systems. the target system is in the course of being replaced by target2, which provides harmonised prices and services, together with improved efficiency and additional functionality. target2 commenced operations in november last and ireland will be in the second group of countries to migrate to the new system in february. finally, target2 securities, or t2s, will harmonise the settlement of securities