specific exchange rate. given the limited prospects of success, the described inflationary risks and the risk of giving away the interest rate bonus, exchange rate targeting as a monetary policy strategy clearly must be rejected. 5. conclusions for more than three and a half years now, europe - and in its midst switzerland - have been living with the euro as deposit money. it has led to fixed exchange rates and a uniform interest rate level in the euro zone surrounding switzerland. the conditions for an optimal currency area have probably not yet been met. but the currency union will develop further. for large parts of the swiss economy, the euro facilitates business. the swiss export sector benefits from lower transaction costs. currency devaluations, which were previously implemented by some european countries so as to improve their competitiveness, are now a thing of the past. in addition, swiss monetary policy profits from the existence of a large economic bloc in europe that pursues similar goals as switzerland in terms of monetary policy. the exchange rate of the swiss franc is likely to remain more stable against the euro than it used to be against the former currencies of the emu members. however, exchange rate fluctuations must still be reckoned with, as the events after the terrorist attacks in the us demonstrated. as a result of the introduction of euro notes and coins, the euro will be used increasingly as a means of payment in the tourism sector as well as in foreign trade. however, the euro will not become a parallel currency. in switzerland, employment and loan contracts will continue to be concluded mainly in swiss francs. the same applies to domestic payments. the snb's monetary policy concept will remain unchanged : in other words, the snb will continue to conduct an independent monetary policy oriented to price stability and the needs of the swiss economy. as a consequence, switzerland is likely to retain its lower interest rate level. exchange rate targets are incompatible with the snb's mandate. nevertheless, since the exchange rate can affect the health of the economy the snb will also continue to take the exchange rate closely into account when determining its monetary policy.

supervision perspective. this renewed emphasis has several different sources. one of them was undoubtedly the financial crises that hit asia in 1997. this experience showed that even if the individual banks in a financial system appear to be sound, the system itself can still be overwhelmed by financial shocks. for example, the system can be exposed to a common risk that isn ’ t obvious from looking at each bank individually. in the asian crisis countries the exposures of banks to foreign exchange risks didn ’ t show up on bank balance sheets. the risks were instead in the balance sheets of their major borrowers, who had borrowed heavily in foreign currencies even though they had domestic currency cash - flows. and this also points to another feature of macro prudential concern – it cannot stop at the traditional boundary of the banking system, but must look at the risks in the nonbank financial sector and at the structure of household and corporate balance sheets. there are also two other factors worth mentioning. the first is that central banks have become increasingly aware that monetary stability and financial stability are closely linked. it used to be said that the reason why central banks were concerned about banking system soundness was that the banks were the main transmission mechanism for monetary policy. this still remains largely true, but central bankers have come to recognise that other aspects of financial stability also matter from the point of view of being able to meet monetary policy goals. for example, as the bond market has become an increasingly important as a transmission mechanism for monetary policy, market conditions, the soundness of intermediaries, and the transparency and integrity of pricing have all become relevant issues for the central bank to consider. the debate that took place a few years back on whether central banks should also target asset price inflation as well as consumer price inflation is another example. a third factor has been the changing responsibilities of central banks. the recent emphasis given to macro prudential policy has coincided with the move, in some countries, to establish regulatory agencies separate from the central bank. the statutory responsibility for ensuring bank soundness has moved to these agencies, but the central bank has kept its traditional concern for the overall soundness of the financial system. this has led to a clearer distinction between the micro - and macroperspectives that had become blurred in the second half of the last century. in britain the creation of the financial services authority led the bank of england to build up its resources in financial stability analysis. this was a result of the bank ’ s efforts to ensure that