Today, the euro is providing market stability, which is also beneficial to third currencies like the Swiss franc. In monetary affairs, size does not really matter, but the rules of the game are more challenging for small countries than for large economies. Small countries have no choice but to respect market realities. They have to accept exchange rate flexibility even if, in the short run, some exchange rate development might interfere with the interests of their export sector. If they were to complement inflation targets with specific exchange rate objectives, they would create market confusion and destabilise expectations. The implementation of a clear and coherent monetary strategy is of the essence. In my view, smallness in combination with monetary independence and flexible exchange rates is a strength rather than a weakness. For us, being able to set our own monetary policy has meant that we could react to country-specific shocks. Had we joined the euro area, we would not have had this flexibility. Furthermore, monetary independence is attractive for small open economies, because policymakers can concentrate on national data when setting interest rates. In a monetary union, data from different countries have to be combined. Also, the decision process in the union is more complicated, since there are diverging interests to be reconciled. As a consequence, monetary policy is more inertial than in a small open economy with a currency of its own.
Also ‘clipping’, that is, shaving off part of the material, was fairly widespread. This led to a phenomenon that many years later became known as Gresham’s law. It says that in commerce ‘bad coins’ drive out ‘good coins’ as the latter are kept for saving purposes. Mistrust in the coin system, or even its entire breakdown, was often the unhappy consequence. Another issue was the plethora of mints that continued to grow in number as technology spread. Fast forward, and at the mid-medieval period it had become fashionable for every European kingdom and principality to issue its own coins. With production costs lower than the coins’ value, this was a useful source of income to finance the frequent wars at the time. But with multiple coins drifting around and uncertainty about their true value, it was essentially a mess. However, where there is chaos innovative minds see opportunities. During the 12th century, in the northern part of Italy, a new type of institution emerged. These specialised in exchanging foreign coins for local ones, not unlike present day foreign exchange dealers. This reduced the problem with the many coins causing much confusion. Even more advanced, some of the new institutions started to swap coins for bills of exchange that could be used in local trade. 3 [15]  The medieval coin-exchange providers brought banking to Europe, it is often said. Initially, they only handled deposits, as charging interest was viewed as usury by the powerful church.