martin redrado : the central bank of argentina passed the test article by mr martin redrado, governor of the central bank of argentina, published in clarin newspaper on 5 august 2007. * * * this time, the epicenter was not latin america, southeast asia or southern africa. the financial turbulence of the past few days comes from the developed world – more specifically, the united states. real estate prices, which have been falling for more than twelve months now, have begun to affect the quality of the assets in the mortgage market. in particular, banks and mutual funds trading mortgages in the subprime market have passed on increased risk to the system. this has led to a massive sale off in most of the higher - yield asset classes, including emerging market securities, to cover losses in the markets of origin. against this turbulent backdrop, which leads to a new risk assessment and tighter credit, argentina has shown that it has the necessary exchange rate and monetary tools to provide its population with a horizon of solvency and predictability. in this context, the central bank of argentina is like a chess player playing simultaneous games, since monetary policy cannot have an erratic or spasmodic behavior. instead, each “ move ” must be in line with the global strategy applied in multiple chessboards, that is, preserving the value of currency, the stability and depth of the financial system, and the equilibrium in the monetary market. from this perspective, special attention should be given to the downstream effect of each “ move, ” since often, “ sacrificing a pawn ” may seem costly in the short - term, but healthy and consistent with the main goals of the framework in place from a strategic point of view. action taken – encompassing a set of financial and banking regulations and direct intervention in the monetary, foreign exchange and financial asset markets – should not be interpreted in isolation. instead, it responds to a preventive and consistent strategy developed in the past few years to ensure the necessary “ artillery ” to prevent frights in times of international financial turbulence. prudential foreign reserve accumulation is an example that speaks for itself. as with every insurance policy, it represents an “ abstract ” benefit while it is not used, but a “ concrete ” one in financial stress situations : the $ 44 billion in the central bank ’ s coffers were enough to discourage speculation that might have increased uncertainty. if this is coupled with the positive inflow of dollars coming from the external surplus, the potential

some parts of the euro area do not appear to be in line with the need to encourage higher employment. the eurosystem ’ s monetary policy strategy with regard to the eurosystem ’ s monetary policy strategy, i should like to emphasise that the euro area monetary policy is a single one and therefore indivisible – by definition. monetary policy decisions must be based on area - wide rather than national considerations and hence on area - wide indicators. monetary policy has to be transparent so as to stabilise public expectations of future price developments. in order to clarify how we interpret the mandate conferred on the ecb by the treaty, the governing council has announced a quantitative definition of its primary objective. price stability has been defined as a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 %. this has to be maintained over the medium term. as the wording ‘ increase ’ makes clear, deflation – that is, a persistent fall in the price level – would not be consistent with price stability. it would not be possible for us to announce where exactly we would draw the dividing line between price stability and deflation. this is partly for reasons that have been described as the measurement bias in consumer price indices. for the united states it was estimated that measured consumer prices tend to slightly overestimate actual inflation. a bias may also exist for the euro area hicp, although its exact magnitude is as yet unknown and needs to be explored further. to maintain price stability, the governing council has chosen a stability - oriented monetary policy strategy. the chosen strategy is forward - looking in nature and also ensures as much continuity as possible with the former strategies of the ncbs. in this respect and with regard to the overriding objective to maintain price stability in an environment of flexible exchange rates, our strategy is broadly similar to that of sveriges riksbank, although there are important differences. in particular, the riksbank follows a direct inflation targeting strategy in which monetary policy is almost exclusively guided by inflation forecasts of about two years ahead. in contrast, the eurosystem relies on two pillars, thereby focusing on the medium term, and does not give such a predominant role to inflation forecasts as the riksbank. in our view, the riksbank has achieved high standards with regard to transparency and accountability, as is for example evidenced by its comprehensive quarterly inflation report. in more recent years, the ri