the government on 29 march 2001, the operational objective of monetary policy is low and stable inflation. pursuant to the regulation, norges bank ’ s mandate is as follows : “ monetary policy shall be aimed at stability in the norwegian krone ’ s national and international value, contributing to stable expectations concerning exchange rate developments. at the same time, monetary policy shall underpin fiscal policy by contributing to stable developments in output and employment. norges bank is responsible for the implementation of monetary policy. norges bank's implementation of monetary policy shall, in accordance with the first paragraph, be oriented towards low and stable inflation. the operational target of monetary policy shall be annual consumer price inflation of approximately 2. 5 per cent over time. [ … ] ” the first paragraph of the mandate sets forth its intentions. the last paragraph specifies what norges bank is required to do. the first sentence in the mandate refers to the value of the krone. stability in the internal value of the krone implies that inflation must be low and stable. low and stable inflation fosters economic growth and stability in financial and property markets. the regulation also states that monetary policy shall be aimed at stability in the norwegian krone ’ s external value, contributing to stable expectations concerning exchange rate developments. with open trade with other countries and free capital movements, we do not have the instruments to fine - tune the krone exchange rate. the krone has appreciated when economic activity has been high and there have been expectations of a wide interest rate differential. the krone has depreciated when activity has declined and the interest rate differential has narrowed. there is also a strong tendency for the krone to revert to a level that stabilises the price level in norway relative to our trading partners, measured in a common currency. 1 the conduct of monetary policy norges bank ’ s operational conduct of monetary policy shall be oriented towards low and stable inflation. norges bank operates a flexible inflation targeting regime, so that variability in output and employment and in inflation is given weight. inflation shall be 2½ per cent over time. monetary policy influences the economy with long and variable lags, and the bank must therefore be forward - looking in interest - rate setting. in the operational conduct of monetary policy in norway, the path of inflation and the real economy in the period ahead will be taken into account. we also give emphasis to predictability and transparency. normally, the interest rate is set with a view to achieving inflation of 2½

euro has brought about a new international monetary order, that it has produced an element of stability that benefits many countries, not just europe ’ s immediate neighbours, but nations around the globe. as we have seen, movements in the dollar / mark exchange rate were magnified as far as the swiss franc is concerned in the past, but are much dampened today. when the euro depreciated against the dollar, the swiss franc did so too, but by a much lesser degree. and later, when the euro appreciated against the dollar, the franc appreciated as well, but again to a lesser extent. in other words, our effective exchange rate has been less affected, the movement of the dollar being offset, at least to some extent, by a movement of the euro in the opposite direction. it seems to me that this phenomenon has benefited not just switzerland, but also many other countries with their own independent currencies, such as the united kingdom, canada, australia, new zealand, singapore, and norway. this evolution might not last. perhaps it is the outcome of chance, but it has been persistent enough over the past few years to be noticeable. maybe one day some smart graduate student will write a thesis on this topic, and confirm or falsify my hypothesis, but in the meantime let me outline why i believe that there are some good reasons for the assumption that the stability of the international monetary system has been enhanced by the creation of the euro. i do not think that anybody would argue that the world as a whole makes up an optimal currency area. our planet is not yet ready for a single currency. we are therefore bound to live in a world with n, n greater than one, currencies. for the second half of the 20th century, we lived with one dominating currency, the u. s. dollar, and many less important currencies, such as the british pound, the japanese yen, the german mark, the swiss franc, and so on. moreover, the united states is a largely closed economy, so it could regard fluctuations in the external value of the dollar with benign neglect. of course, most other countries, being rather small and quite open, were fully exposed to turbulences in foreign exchange markets, but there was not much they could do about it. there were several episodes when the internal stability of the dollar was threatened as well, with u. s. inflation rates in the double digits. the flight into more stable cu