But any discomfort I feel in that regard of course pales in comparison with the challenges facing those most directly exposed to the current cost of living crisis. We recognise the hardship associated with elevated inflation rates. For those who spend a higher proportion of their income on energy and food – unfortunately, a group particularly numerous among the less well off – recent price rises have imposed a significant squeeze on their real incomes. These are difficult times for many people. Our current experience is therefore a salutary reminder of the importance of price stability – what makes the MPC remaining ‘in the price stability business’ so crucial. It is essential we bring inflation back down to target, so as to reduce the uncertainties facing households and allow firms to plan for the future. Achieving price stability serves as an anchor for wider macroeconomic stability and prosperity. Page 4  The institutional framework for monetary policy – an independent central bank held to account for its pursuit of an explicit inflation target – is in place. For the first time in its twenty-five year history, that framework is being put to the test in an inflationary global environment. We have to meet that test successfully. Acting to achieve the 2% inflation target is now more important than ever. In the MPC, we have both the tools we need and the resolve it will take to restore price stability. Even in the face of current challenges, I am confident that we will succeed.
One is its impact on and implications for the conduct of financial and commercial business here, essentially at the micro level. The other relates to some macroeconomic policy aspects of the euro’s birth, which are also relevant to Hong Kong despite our being some 10,000 kilometres distant. Consequences for financial markets and trade As one would have expected, the wholesale financial markets switched quite rapidly to quoting and dealing mostly in euros instead of the constituent currencies, and many businesses also chose quickly to redenominate their relevant accounts, although a significant number have not yet done so. The choice is largely one of practicality and economy, rather than of economic significance, given that, formally, the parent currencies are now no more than subdenominations of the euro; one might therefore expect people to opt quite quickly for the convenience of a unified denomination rather than to continue operating with up to eleven separate ones. So far as I have been able to ascertain, the euro is trading in foreign exchange markets just as one would expect a major international currency to trade - that is, with good liquidity and fine spreads. However, total turnover is less than that for the predecessor currencies taken together; indeed one would be disturbed if that were not the case, since the rationale for cross trades and arbitrage between the former currencies has evaporated. That is why in most financial centres - and Hong Kong is no exception - dealing rooms have been slimmed down.