This is particularly true in the euro area, where banks are firms’ main source of external funding, as opposed to other economies whose financial system is sometimes considered more “market based”. These differences across economies also determined different policy responses. The US and the UK initially focussed on asset support that was intended to return markets to proper functioning.
Therefore, changes to the exchange rate system must go hand in hand with efforts to strengthen the banking sector. China’s accession to the World Trade Organisation (WTO) comprised commitments to substantially liberalise its financial sector by 2006. Clearly, the pace at which market participants need to comply with international practices may differ – e.g.