Challenge 1 - Continued internationalisation Allow me to deal with the different challenges in turn and therefore begin with the challenge posed by internationalisation and, in particular, European integration. One of the driving forces behind the trends in the capital and credit markets is increased international competition and increased awareness of international opportunities. The diversification of both financing and investment is increasing, and risk management instruments are being improved. Europe affects the financial markets through the euro. In addition to the 12 euro countries in the EU, there are a large number of countries in which the euro plays a pivotal role either as a means of payment or through some form of link to the euro. In coming years, when the current accession countries gradually introduce the euro, the euro markets will become larger. At the same time, the harmonisation of rules will continue and the markets will become more integrated. Meanwhile the euro has been accepted by the rest of the market; both the United States and the United Kingdom keep just over half of their official foreign exchange reserves in euro. Canada and Australia keep around 40 per cent in euro. There has therefore been a rise in demand for euro bonds and an increase in liquidity in the market. At the same time, the supply of bonds has risen as an increasing number of agents, both companies and states, are choosing to finance their activities  BIS Review 15/2003  3  through the bond market.
See the box on page 13 of the May 2009 Inflation Report for discussion of the reasons for excluding intermediate OFCs in measures of broad money. 7  This is in a similar spirit to Bernanke, Reinhart and Sack (2004). BIS Review 29/2010  5  Similarly, movements in OIS rates following policy announcements may provide a guide to the extent to which the announcements affected expectations about the future stance of monetary policy. OIS rates fell sharply following the initial announcements of QE, particularly at short horizons, suggesting these announcements caused market participants to revise down the expected future path of Bank Rate. However, perhaps not surprisingly, as QE has become better understood, OIS rates have responded less to more recent announcements. This is consistent with market participants increasingly viewing QE as part of the systematic component of monetary policy. To the extent that gilt yields and other asset prices have moved in response to this systematic component, these movements would not be captured by event studies and hence looking only at announcement effects may tend to understate the impact of QE. Gilts make up a relatively small proportion of total assets held by the private sector. As such, when assessing the overall impact of our asset purchases it is important to consider the increase in other asset prices. Since we started QE, equity prices have increased by more than 50%, and corporate bond yields have fallen by over 400 basis points.