Firstly, it is a means of payment, which means that a monetary value is transferred to the recipient when money is handed over. Secondly, it forms a unit of account, in Sweden this unit is krona and öre and in the United Kingdom it is pounds and pence, and so on. With a common unit of account, we all measure the value of goods in the same way, which makes it easier to compare the price or value of different goods. Thirdly, money is a store of value, which means that we can save by holding cash or money in bank accounts and thereby redistribute consumption from one day to another date in the future. Money is something we take for granted, but for money to work in practice, we first have to deal with a very complicated problem. This problem concerns trust, and trust in turn depends on many different things. However, the basic idea is that we must be able to trust that the money will retain its value over time - that we can still use it to pay with tomorrow. Otherwise we will not want to accept cash, for instance, as payment and we will try to get rid of that we have as quickly as possible. This is exactly what happens with hyperinflation. Money is exchanged as quickly as possible for bread, sanitary items, gold or something else that can in turn be exchanged for other goods or saved.
In doing so, the Fed is also continuing to underscore that actions such as our purchase of U.S. government securities are driven exclusively by our monetary policy goals, and that these policy actions will not continue beyond the moment they become inconsistent with our dual mandate objectives. In general, policymakers should strive to ensure that we have both fiscal and monetary policy frameworks that are transparent and viewed as credible and durable. Interconnectedness means that events – be it the tragedy of a Japanese earthquake and tsunami, a revolution in Libya, or a financial crisis sparked by a housing boom and bust in the United States – can be transmitted to domestic economies located far away from the initial source of shock, often at market-speed measured in milliseconds. This interconnectedness underscores our common interest in cooperating not just to facilitate needed economic adjustments, but also to address fragilities in our interconnected global financial system. I think coordination on regulatory matters differs from on macroeconomic issues in two important respects. First, the benefits to cooperation and coordination on certain aspects of regulation seem easier to identify up front. Second, while policy coordination on regulatory issues is also very challenging, it may not be quite as difficult as in the macroeconomic realm. The stakeholders are not typically as numerous or diffuse, the problems are generally easier to identify, the gains from a cooperative solution are more obvious, and the cooperative solutions themselves may be easier to implement. On the regulatory side, I’ll start with a few broad observations.