It should also be pointed out that in practice, not all goods and services will be objects for cross-border trading and that competition will not therefore be completely all-inclusive, even when the single market has been implemented. The actual introduction of euro banknotes and coins will not noticeably increase competitive pressure in Sweden, as prices here will continue to be expressed in krona and prices in the euro countries will be expressed in euro. This will probably continue to give some scope in the future for specific pricing adapted to Swedish conditions. I stated earlier that the role of the krona as unit of account and means of payment in Sweden is unlikely to be affected by euro banknotes and coins becoming legal tender in the euro area as of 1 January 2002. The krona is also likely to continue to play an important role as store of value for Swedes, as least uncertainty over real growth in net wealth, i.e. future real purchasing power, will be achieved if households save and borrow in assets and liabilities in their domestic currency, as long as price stability is maintained. Hence, a large part of Swedish households' assets and liabilities are held in krona today. Those Swedes who now choose to build up their future purchasing power by buying euro bonds are probably intending to pay for their future consumption in euro, either by moving to a euro country or because they assume Sweden will adopt the single currency at some point in the future.
Experience suggests that asset price cycles continue to be very substantial In the last two decades market forces have indeed tended to cause misalignments between equilibrium and actual asset prices. Stock markets in particular have experienced this phenomenon. But in foreign exchange markets as well, prices have also a tendency to diverge substantially from their “equilibrium level”, although those divergences have been contained through fruitful G7 co-operation during the last 15 years. In addition, some markets have seen an increase in volatility and frequent volatility peaks. Although cyclical moves should be clearly distinguished from volatility, the latter may in some circumstances exceed what can be considered optimal, making the price determination mechanism less efficient and thus contributing to misalignments. Moreover, as demonstrated by a number of financial crises during the last two decades, contagion among countries and across financial markets has been frequent. As a result, investors have faced asset price fluctuations that might be more synchronised than before. Lastly, the connections between credit, asset price and business cycles have tended to amplify cyclical swings. Credit, in particular, is playing an important role in asset price fluctuations. Observed in particular during the “speculative bubbles” of the 1980s and early 1990s, this trend has persisted. Another example is provided by boom-bust cycles in asset prices which have often been associated with sharp economic contractions. Several factors are in play when financial asset prices experience amplified moves I shall give a few examples.