the treaty requirement that each member state treat its exchange rate policy as a matter of common interest. free trade and capital movements could clearly not be sacrificed in a true single market. also, europeans saw fixed exchange rates as an important component of fair competition. it was thus the national sovereignty over monetary policies that would have to be let go. in this sense, the single currency became a way of maximising the benefits of the single market. and the empirical evidence suggests that sharing a currency has indeed boosted trade, although the effect may be smaller than was earlier suggested. 4 let me also add that, for several member states, joining the single currency implied not only greater policy efficacy, but paradoxically, greater national influence. whether austria before 1999 or latvia today, many member states pursued a fixed exchange rate policy or currency board vis - a - vis a bigger neighbour – germany in the past, the euro area today. this meant that they were effectively importing a monetary policy over which they had no say. now, as members of the euro area, they have a say. when latvia will adopt the euro on 1 january next year, my colleague the governor of the central bank of latvia will partake fully in the formulation of the ecb ’ s monetary policy. the same cannot be said of the countries that peg their currencies to the us dollar, some of which are considerably larger. from a single currency to a banking union the implications of the decision to set up a genuine single market are not limited to the creation of the single currency. the single currency itself has consequences, of which the most pressing is banking union. the establishment of a banking union has been agreed by heads of state and government in europe and is now being delivered in stages, starting with the single supervisory mechanism. this has been entrusted to the ecb and has recently been approved by the european parliament. we trust that a single resolution mechanism will enter into force by the beginning of 2015. to understand why banking union is a consequence of monetary union, it is worth recalling that only a small fraction of money is “ outside ” money, meaning the liability of the central bank. the bulk of money used in the economy is “ inside ” money, meaning the liability of a commercial bank. for money to be truly single within a currency area, there has to be full substitutability between its different forms. this means that one euro in a bank in any euro area country has to be fully substitutable with a

) the strength and causation of the feedback loop between the domestic real economy and its financial markets ; and 2 ) the importance of the risk - taking channel of policy transmission. these linkages were not much considered or thought of as systemic, but they ( in reality ) are. learning from these lessons, policy makers are now focused on the “ systemic - ness ” of risks and how the global reform agenda could be structured to mitigate the re - emergence of such risks. during both crises, banks played a central role in defining and disseminating the risks that nearly collapsed the financial markets. interestingly, however, economic textbooks continue to depict banks in their “ traditional ” role of mobilizing savings and intermediating credit. in practice, banks are much more dynamic. they adapt to new opportunities that arise, innovating and creating new products that are seen to increase the value of their individual franchises. we only need to be reminded of our experience from both the afc and the gfc. as regulators, we also have had to make adjustments and broaden our perspective in bank monitoring and supervision. while our objective remains to ensure that banks operate in a bis central bankers ’ speeches safe and sound manner, we now know that it is no longer sufficient to simply hold individual banks to that standard of “ safe and sound ”. we have learned that we need to be cognizant of how things affect one another. this is the specific purview of the financial stability agenda. such a holistic view addresses the weakness brought about by the fact that banks can only see their own balance sheet and remain oblivious to how they affect the rest of the system. the global reforms that we have seen post - 2008 are premised entirely on mitigating systemic risks. the basel 3 agenda formally covers many more risks than the previous standards and requires banks to have “ higher - quality ” capital. information asymmetries will be addressed by uncompromising standards on transparency and one can see this in the reforms for otc derivatives and repos, among others. new standards on board responsibilities, in financial market infrastructures and in financial literacy ensure that stakeholders are aware of the issues and act accordingly. looking forward : global reforms and what these mean for asean integration all of these standards are discussed and finalized at the global level but they will invariably affect our approach to regional integration. this is precisely because a single market could be a source of contagion, the very same risk that became apparent