greater use of their own assessments of risk as inputs to capital calculations. in that vein, basel ii will provide banks with a range of options for determining their capital requirements for credit and operational risk. this will allow both banks and supervisors to select approaches that are most appropriate for banks ’ operations and local financial markets. national authorities in the g10 countries will now continue their focus on adopting and implementing the new framework through domestic rule - making processes. consistent implementation of the new framework across borders through enhanced supervisory co - operation will become a critical and challenging task in the years ahead. we are also circulating the basel ii framework to supervisory authorities worldwide. we encourage them to consider adopting this revised framework at a time that they believe may be consistent with their broader supervisory priorities and readiness. yet we recognise that adopting basel ii in the near future may not be the first priority for supervisors in these other jurisdictions. they may wish to take some steps first to strengthen the capitalisation and risk management capabilities of their banks and to enhance the quality of bank supervision. the text of basel ii will be released today on the website of the bank for international settlements. as the product of three global consultations and several quantitative impact studies, the basel ii framework has evolved and strengthened considerably since it appeared first in 1999. on behalf of the g10 governors and supervisors, i would like to warmly thank all of those organisations and individuals who contributed to the process and supported the work of the basel committee by sharing their views over the years. i welcome now the remarks of my colleague, jaime caruana, governor of the bank of spain and the chairman of the basel committee. governor caruana has devoted considerable energy and efforts to completing the work on the basel ii framework that was launched so capably by bill mcdonough, the previous chairman of the committee.

prevail in the early years of monetary union. this strategy rests on two pillars. first, broad money is assigned a prominent role in the strategy. this is deemed to be important on account of the essentially monetary origins of inflation over the longer term. second, a broadly based assessment of the outlook for price developments and the risks to price stability in the euro area as a whole is carried out. monetary developments can reveal useful information about future price developments and thereby offer an important compass for the conduct of monetary policy. there is broad consensus that the development of the price level is a monetary phenomenon in the medium to long term. this takes into account the fact that monetary policy affects the price level only with variable, usually long and unpredictable time lags. it is not able to control all short - term movements in the price level. furthermore, the historical experience of central banks in europe and beyond demonstrates that it is important for the success of monetary policy to carry out a thorough analysis of monetary aggregates and the information they contain. the governing council of the ecb has announced a quantitative reference value for the annual growth of the broad monetary aggregate m3. substantial or prolonged deviations of current monetary growth from the reference value should, under normal circumstances, signal risks to price stability in the medium term. the choice of m3 as an aggregate is supported by empirical evidence regarding the long - run stability and leading indicator properties of this aggregate. moreover, conceptual arguments pointed to the importance of including in the monetary aggregate those assets which have a high degree of substitutability with narrower definitions of money. monitoring monetary developments also helps identify the nature of shocks hitting the economy. it thereby contributes to the assessment of overall economic developments. monetary policy does not react to deviations of monetary growth from the reference value in a ‘ mechanistic ’ way. in the first instance, such deviations will be thoroughly analysed to infer any signals which they may offer about the prospects for price developments. if the deviation points to a threat to price stability, monetary policy will react in a manner appropriate to counter this threat, rather than attempting to eliminate the deviation of monetary growth from the reference value in the short term. the first reference value for m3 growth has been set at an annual rate of 4½ %. this reference value is consistent with the maintenance of price stability over the medium term, while allowing for sustainable output growth and the trend decline in the velocity of circulation of m3. it will be reviewed in december 1999.