##u in connection with the eu enlargement there has been an intense discussion in recent years, both in the old and new eu countries, about what requirements should be imposed on the new member states ’ economic policy. the discussion has not dealt with entry to the eu, for which the key issues have already been settled, but the next step : the euro. nine of the ten new member states have announced their intention to introduce the euro as quickly as possible. for some of them the changeover would be entirely undramatic and opportune. for example, estonia and lithuania have long had currency boards anchored to the euro, whereby the currency is only issued against a certain statutorily established quantity of euro - in practice a kind of “ shadow euro ”. the currency boards anchored to the euro are considered to have contributed to falling inflation and a stable investment climate. their economies have been highly flexible in terms of wages and prices and their government finances have been in order, and they have thereby been able to manage situations where developments in the baltic countries have deviated from those in the euro area. the fact that they now also have the opportunity to introduce the euro is expected to provide further advantages for trade and price comparisons. but for some of the other new member states a hurried transition to the euro could give rise to problems. to qualify for participation in the eurozone the countries must meet the convergence criteria which lay down various requirements for inflation, interest rates, the exchange rate and government finances. the baltic states are very close to meeting these criteria today, or have already fulfilled them. but the largest new member states have bigger difficulties. one of the criteria for introducing the euro is that a country keeps its exchange rate stable within the bands set by the exchange rate mechanism erm2, which allows a maximum movement in the exchange rate of 15 per cent up or down. the largest of the new member states - poland, the czech republic and hungary - today have a floating exchange rate. in this regard there is a more theoretical and more immediate danger for the countries. the theoretical problem has to do with the pressures that high growth exerts on a country's economy and that, according to the balassa - samuelsson theorem, either leads to a rise in the exchange rate ( nominal appreciation ) or to a higher inflation rate than in other countries ( real appreciation ). if the new member states peg their exchange rates to the euro and at the same time have higher growth than the euro area countries

market, this will have positive spillovers in lifting the quality of jobs in the industry more generally and reversing the brain drain of insurance talent. secondly, insurers need to stay ahead of the curve in leveraging new technologies to be more accessible, more efficient and more agile. many forces will be driving insurers to be more innovative. the removal of tariffs and changes introduced under the life framework will drive the growth of new products and delivery channels. as social media and other forms of communication change the way insurance is accessed, traditional business models will be at risk of being “ uberised ”. even where face - to - face contact remains important, for example in the purchase of long term life insurance, the effectiveness and cost efficiency of agents will be transformed by enhancements in productivity arising from better data analytics. the bank will continue to pursue the innovation agenda. technology advancement is here to stay. revolution in business brought about by technological advancements will change the way we live and do business. as a catalyst for such innovations, i am pleased to announce that following a public consultation process, the bank has today issued details of the financial technology regulatory sandbox. effective immediately, financial institutions and fintech companies will now be able to pilot innovations in a controlled, live - test environment with appropriate flexibilities accorded. this will include flexibilities under existing regulatory requirements that apply to outsourcing arrangements and access to customer information, subject to compensating safeguards. the experience from the sandbox will provide input into formulating more proportionate regulations that will spur the orderly growth of new innovations in the financial industry, including insurance. we see significant potential for positive disruptions to transform the business of insurance and takaful in malaysia – from the way insurance is consumed, to opportunities for addressing leakages to drive insurance costs lower. indeed, the greatest gains from technological innovations may well be reaped in the more mundane aspects of running a business efficiently. today, money is still being left on the table from inefficiencies and leakages in the insurance system. from inefficient manual bis central bankers ’ speeches processes to the slow take - up of electronic payments, there are large gaps in the supply chain that unduly increase the cost of insurance and limit efforts to combat insurance fraud. the insurance industry needs to accelerate its pace in terms of its technological adoption or else events will dictate the shape of the industry ’ s future.