Investors are still feeling their way: for example, deciding on a benchmark yield for the euro, when there is a significant spread of perceived credit risk even between member state governments, is one area where fund managers may still be finding their feet. Although I am not close to it myself, it is my impression that the industrial and commercial sectors have also adapted well to the euro, although the amount of adaptation that has been required differs across individual cases. Many may not be affected, but equally many may be experiencing a drift towards more quoting and invoicing in euro; in some cases there will be pressure to do so which, on competitive grounds, they can ill afford to ignore. And there will be some who find themselves at a slight competitive disadvantage if they are bidding for business in a euroland country against a competitor from another euroland country; previously both bidders had to take account of exchange risks and conversion costs, but now it is only the Hong Kong bidder who faces these. Finally, I understand that among the general public there was an initial burst of interest in euro deposits (over and above mere redenomination of existing ones in the parent currencies), but that this interest waned somewhat with the euro’s subsequent depreciation.
Challenges for policy Turning now to macroeconomic issues, we in the Hong Kong Monetary Authority have had a particular interest in the arrival of the euro, since it was the final step in the transition of the eleven participating countries from closely aligned rates to irrevocably fixed rates, and has therefore consolidated the number of economies where, like Hong Kong, some form of fixed exchange rate arrangement is regarded as both desirable and workable. Of course, I accept that technically the eleven currencies have not been fixed or pegged to one another, but have gone a stage further and been replaced by a single successor. But the critical point is that the euro countries individually have to a large extent, as Hong Kong did to an even larger extent over fifteen years ago, surrendered scope for exchange rate adjustment as an instrument of policy. In the euro case the surrender is not total since, although no member can any longer move relative to the ten other participants, the European Central Bank can of course still pursue an independent monetary policy relative to the rest of the world. Hong Kong is more tightly bound, since we are linked to the US dollar over whose wider value we have no influence. When we pegged the Hong Kong dollar to the US dollar in 1983 we did so at a time of crisis and partly because there was, for institutional reasons, effectively no viable alternative available to us at the time.