implemented in the identification of the time in which normalisation will mean a return of money to its traditional means of payments function. at that time, when inside money will resume its traditional role in liquidity provision, when the multiplier will start increasing, the central bank will have to be quick in re - absorbing the excess outside currency created in the crisis times. money will have to be put back along the trajectory indicated by the quantity theoretic relation. conclusion let me conclude with a few words on how these considerations affect the ongoing debate on putting emu on a sounder footing. bis central bankers ’ speeches an effective monetary policy is one which can resist inflationary pressures and stabilise inflation at low and stable levels. for this, an independent central bank is an absolutely necessary condition. but it is not sufficient. the fiscal counterpart needs to be disciplined and the overall macroeconomic framework needs to foster stability. in such a system, the central bank can concentrate on the determination of the interest rate charged on its liquidity provision to the banks with a view to maintaining inflation at low and stable levels. the fiscal authority for its part has to ensure that its fiscal policy stance remains consistent with debt sustainability, at whatever real interest rate may be determined by the central bank. then households and firms can focus on their undertakings without having to worry about sudden shifts in economic policy that change the calculus underlying their decisions. judging against these ideals, we must acknowledge that the track record of emu has been mixed. despite the challenges that several countries in emu are currently facing, it is important to emphasise that the ecb has delivered on its price stability mandate, with cpi inflation averaging around 2 % per annum. moreover, the ecb has contributed to averting acute downside risk to inflation during the crisis, which would also have impacted adversely on economic stability. to this end, the governing council forcefully reduced the main policy rates and adopted several non - standard measures that preserve the transmission of monetary policy signals to the economy. its full operational independence and the clear orientation of its price stability mandate have been crucial cornerstones in guiding these interventions. at the same time, our experiences since the start of emu underscore the importance of other policy domains for economic stability. in a benign economic environment before the crisis, the institutional framework of emu has not prevented the accumulation of fiscal imbalances, losses in economic competitiveness and the build - up of excessive risks in the financial sector. when the

needs public regulation and – in its pure form at least – cannot be manufactured by unfettered private issuers. it is easy to understand why. any unregulated private issuer would have the incentive to increase note issuance well beyond the socially - optimal level. this is due to a failure of private issuers to account for the negative externalities that increased production of currency, and the concomitant erosion in its value, would have on those using it. in fact, unfettered private issuers would produce currency up to the point where the value of the exchange services provided by the last unit of currency produced is equal to the marginal cost of producing it. but if issuing unconvertible notes is costless – or nearly costless – then an agent with the right to issue notes would do so in infinite quantities, because only when the money stock becomes infinite is the exchange service value of the last unit in terms of goods indeed driven to zero. of course, one can think of incentives for banks to preserve their franchise, thus partly counteracting their temptation to drive the last unit of their own currency to zero and reap the entire exchange value that private traders assign to that unit. for example, the bank could commit to buy back its notes whenever their value relative to a certain basket of goods declines. but time inconsistency problems apparently make these arrangements prohibitively costly to run, because there is – to my knowledge – no evidence in history of a fiat currency regime, where all money is inside money and no money is contractually redeemable, at least the us dollar had been inconvertible to individuals since 1933. in 1971 president nixon made it inconvertible to foreign central banks as well. bis central bankers ’ speeches ex ante, into some real asset available in the bank ’ s inventory. 8 a currency that offers zero exchange services at the margin is a currency without real value, a currency that supports an infinite price level : in effect, a failed currency. third, public regulation has to be designed in such a way that any market failure resulting from unfettered private issuance is not simply replaced by government failure : this essentially requires that the right to issue currency be placed outside the remit of fiscal authorities and instead be entrusted to an independent public agency, such as a central bank. this central bank ’ s task should then find a technology that forces money to be maintained in a certain proportion to real income and to the