These two elements are interlocked, thereby taking account of the insights reached in international discussion in this area. The SNB supplies the economy with liquidity first and foremost through money market operations, but also, under certain circumstances, through its function as lender of last resort. Emergency liquidity assistance is only provided if the stability of the system is severely jeopardised. The SNB guards against this situation by helping to ensure a well-functioning liquidity supply. It facilitates and secures the operation of cashless payment systems, regulates and monitors both the payment and the securities settlement systems and works to ensure that these systems are crisis-proof. In addition, it continually oversees and analyses developments in the financial system and collaborates closely with the Swiss Federal Banking Commission (SFBC), the banking supervisory body. Currently, there are three questions that direct the SNB’s use of information on the stability of the financial system when it makes monetary policy decisions. The first question is whether monetary policy – as an instrument for ensuring price stability – can be improved by including information on banking system stability? The second question works the other way round: Can monetary policy influence the stability of the banking industry? And – if the answer to this second question is yes – the third (normative) question is whether monetary policy should be used to increase stability in the banking industry. While the answers to the first two questions are in the affirmative, the response to the third is negative.
If a regional currency is chosen as the anchor, in the same way that the deutschmark was effectively the anchor for exchange rate arrangements leading up to European monetary union, would this be the yen or the renminbi? Alternatively, could Asia move straight to a single currency? It is increasingly argued that, in a world of liberalised markets, the only viable exchange rate system is either a hard peg (like Hong Kong's Currency Board) or a free float. Soft pegs by their nature are vulnerable to self-fulfilling speculative attacks, as was demonstrated in Europe in 1992, Mexico in 1994-5, and Asia in 1997-8. Europe was able to move gradually to a system of fixed exchange rates with capital controls prior to the introduction of a single currency. But the high degree of capital mobility in a number of key Asian economies would make gradual transition in this way more difficult. A further set of technical issues concerns the setting up of, and mandate for, an Asian central bank. This would require agreement on the monetary policy objective, country representation, and decisionmaking process of the central bank. Most important, the institution would need to be designed so that national interests are kept in check in order to deliver efficient monetary policy making at the regional level. The lesson from Europe is that agreement can be reached, but I have to say that the issues are quite daunting.