Overall wage growth may then be lower than projected and provide the basis for an easing of monetary policy. The global economy appears to be vulnerable to new disturbances. Since summer 2002, international financial market developments have been marked by increased optimism concerning the growth outlook. Equity prices and long-term interest rates have risen. The increase has been uneven, however, and there have been wide fluctuations between major currencies. This may be a reflection of the uncertainty about the strength of the global economic recovery. Developments in the krone exchange rate represent a source of considerable uncertainty. The relationship between the krone exchange rate and the interest rate differential against other countries  6  BIS Review 50/2003  is not necessarily stable over time. Themes in international financial markets shift. We may not yet have seen the full effects of the interest rate reductions on the krone exchange rate. Even though Norges Bank is forward-looking in its conduct of monetary policy, thorough knowledge of the current economic situation is extremely important. An up-to-date and correct picture of the current situation is necessary to make accurate projections for the period ahead. In autumn 2002, Norges Bank established a regional network as a tool to gauge the level of activity in the Norwegian economy. Official statistics and evaluations of developments in financial markets will continue to be the main basis for our assessments, but due to the time lag and revisions of such statistics, supplementary information is useful.
Apart from the EU countries participating in ERM II, a number of countries – mainly in Central and Eastern Europe and in Africa – have unilaterally decided to peg their currencies either to the euro or to one of its legacy currencies. Other countries are pursuing managed-float policies, with the euro as the main reference currency, whereas another group of countries is pegging their currencies to baskets of currencies, such as the Special Drawing Rights containing the euro. Against this background, the use of the euro is likely to increase both as an intervention currency and as a reserve currency. As a matter of fact, just like private international investors, central banks may find it convenient to diversify their portfolios to incorporate a currency offering broader investment opportunities than its legacy currencies. Apart from the existence of a large, liquid and integrated capital market, another major prerequisite for the substantial use of a currency by foreign investors is confidence in the long-run stability of its purchasing power. In this regard, internal price stability should provide a sound basis for the development of the euro’s external value in the medium term. By maintaining price stability, the Eurosystem is contributing to the emergence of a solid and stable currency over the medium term, thereby fostering the euro’s international role. Conclusions Coming to the end of my speech, let me quote Mark Twain by saying that predictions should be avoided, particularly those about the future.