But this presupposes that, instead of again remaining outside, we participate in the contexts where developments are constructed. Opportunities and risks The idea behind a single currency in Europe is simple. One currency is better than many - it makes things work more efficiently. Eliminating the need to exchange currencies reduces transaction costs. The exchange rate stability facilitates trade and investment. A single currency makes price comparisons and economic estimates easier, not least for small and  BIS Review 14/1997  -2-  medium-sized companies. More direct price comparisons should lead in turn to stronger competition and downward pressure on prices, to the benefit of consumers. But risks are also involved when a single currency is introduced in so many countries with geographical, cultural and institutional differences. The Calmfors report has highlighted the insurance argument. I agree that this is an important point against EMU and therefore warrants particular attention. Monetary and exchange rate policy can be used as a kind of insurance against major, unforeseeable shocks in a single country. Without it, large adjustments may be required in other parts of the economy. However, when Calmfors and others claim that country-specific shocks have been more frequent in the Swedish economy than in the EU’s core countries, they are on uncertain ground. There are many indications that the shocks in Sweden have been occasioned above all by domestic economic policy and other institutional conditions, in the labour market and in wage formation.
In the year to November, total household borrowing rose 4%, and consumer credit rose over 10%, the fastest rate since 2005. How household spending evolves, and the inter-temporal trade-off that households strike, will be important considerations over the next year. The MPC will continue to monitor these dynamics. In November, the MPC reiterated that we were choosing a period of somewhat higher consumer price inflation in exchange for a more modest increase in unemployment. But it also noted that there are limits to the extent to which above-target inflation can be tolerated. Those limits depend on the cause of the inflation overshoot, the extent of second-round effects on inflation expectations and domestic costs, the scale of the shortfall in economic activity below potential, and any risks around the development of imbalances that could threaten a sustainable return of inflation to the target. Recently, there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally. The MPC will monitor developments in the light of its inflation tolerance, and will explain its assessment and policy stance accordingly. 16  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches  16  It remains the case that the outlook for inflation will depend on the evolution of the prospects for demand, supply and the exchange rate. Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target. 7.