Consistently with this view, we believe that it is essential that payments be able to flow freely throughout the TARGET system. 25. Why do we devote this effort for preparing for the euro? The reason is very straightforward. London’s pre-eminent position as an international financial centre rests on the fact that it provides broad and liquid markets for the full range of internationally-traded currencies and for the vast array of different instruments and facilities denominated in them. The euro will undoubtedly become a major internationally-traded currency, and it is therefore certain that it will be traded extensively in the London markets. The euro thus represents an opportunity, rather than a threat, for the London markets, and it is important that the London markets prepare in good time the systems and infrastructure needed to take advantage of this opportunity. London as a financial centre after EMU 26. The reason why we are convinced that the euro represents a major opportunity for the London markets relates essentially to the strengths that the London markets have displayed over the years:  •  London is a global financial centre rather than just a European centre, with much of its business generated around the world, not just within Europe. BIS Review 110/1997  -5-  •  London has always thrived on financial innovation, and has a strong track record of capitalising on new opportunities. •  The euro may very well bring greater financial activity to the main Continental financial markets.
This made it less probable that the global economy would remain weak for a number of years. Recent developments in Brazil have contributed to some recurrence of unrest in international financial markets. Once again there has been an international flight to securer assets but it has been more limited than last autumn. There has, however, been a substantial depreciation of the Brazilian currency. It is still difficult to tell just how crisis in Brazil may affect the world economy. The future course in Brazil, with the attendant risks of knock-on effects in Latin American and other parts of the globe, will depend on what the national authorities do to construct a sound foundation for the economy. It has been shown, not least by our own economic experience in the early 1990s, that changing from a fixed to a floating exchange rate does not by itself provide a lasting solution to economic problems. What is needed is rather a comprehensive programme for enhancing confidence, with budget policy as not the least important component. A clear target and a consistent approach in monetary policy BIS Review 14/1999  –4–  can also contribute to economic policy’s credibility. But it does seem likely that developments to date in Brazil will tend to subdue growth in Latin America and even to some extent in the OECD area as a whole. Despite the unusually long duration of the US economy’s upward phase, the situation there is still buoyant. Growth in the closing months of 1998 was very strong.