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Opening Speech
Masaru Hayami, Governor, Bank of Japan
At the 10th International Conference
held by the Institute for Monetary and Economic Studies, Bank of Japan
July 01,2002

It is my great pleasure today to address the 10th international conference hosted by the
Institute for Monetary and Economic Studies.

On behalf of all my colleagues here at

the Bank of Japan, I welcome all the participants.

And my special thanks to the

Institute’s two advisors, Professor Allan Meltzer and Professor Maurice Obstfeld.


have done a wonderful job helping us organize the conference.

This is the first conference in the 21st century, and for such an occasion my colleagues
chose ‘Exchange Rate Regimes in the 21st Century’ as the theme.

Exchange rate

regimes among major countries experienced several changes after World War II while
fulfilling their expected role of enhancing cross-border trade and investment as well as
encouraging world economic growth and preserving price stability.

Being a central banker, I was also involved in changes in exchange rate regimes.


Sunday, August 15, 1971, when U.S. President Nixon announced that the US would no
longer convert the dollar into gold, I was stationed in the London office of the Bank of

And I still vividly remember that on the following day, Monday, with

Bundesbank Vice-President Emminger, I took part in a confidential meeting with US
Treasury Undersecretary Volcker.

He had flown over to London to explain to the

European monetary authorities the President’s announcement.

Most of the major countries, except Japan, closed their foreign exchange markets after
the announcement.

European participants, who broke the ice at the meeting, said

that they could not re-open their markets until the US decided the new parity of the

For monetary authorities at that time, the adoption of floating exchange rates

was not like the dawn of a new era with full confidence.

The then BIS President

Zijlstra termed the trial and error among authorities under the floating exchange rate
regime “a voyage through uncharted waters,” and that was how all the monetary
authorities felt.

Some 30 years have passed under the floating regime and now we have two challenges
for the regime to meet.

First, we have to work out how to preserve foreign exchange rate stability between
major currencies.

The dollar has functioned as a key currency under the floating

exchange rate regime.

Its exchange rate on other major currencies, however, has by no

means been stable.

I have had a hard time, sometimes as a central banker, and sometimes as the head of a
trading company, dealing with fluctuations in foreign exchange rates.

In the meantime, EU countries made efforts to stabilize foreign exchange rates between
member countries and such efforts paid off at the end of the 20th century.
birth to a single currency, the euro.

They gave

The euro will no doubt contribute to enhancing trade and investment within the region
and will be a model for other regions in the world.

And it will take some time to get

clues to what extent the euro will play the role of a key currency and lead to the stability
of foreign exchange rates between major currencies.

I should also add that we might need to review the background history and rationale
behind the special drawing rights (SDR) of the IMF which were created in 1969.

The other important challenge in the 21s' century is how we can devise the exchange
rate regime in order to stave off currency and financial crises in the emerging economies
and also how to contain resultant contagion to the minimum.

We understand that the past currency crises in Latin American and Asian countries were
brought about by individual and unique factors.

Still, we have no choice but to make

steady efforts to learn from the past crises in various countries in order to ward off
currency crises and contain contagion.

I am told that this conference will take up such

issues related to currency crises and I am convinced that your discussions will provide a
good opportunity to enhance our understanding.

A better understanding of an ideal exchange rate regime may not lead to a universal
currency system all the countries around the globe accept.

I have several times

witnessed a currency system, once optimal for a certain country at a certain time,
gradually become fraught with inconsistencies and unstable in time.

Yet, pessimism is not what I want to spread.

A series of inconsistencies in the

international currency have, in my judgement, deepened our understanding of the
functions and roles of an exchange rate regime and have encouraged the evolution of
such a system.

To rack our brains and map out ways to achieve a better exchange rate

regime is one of the most important challenges for central bankers.

I am convinced that with the experts from all over the world exchanging their
experiences and views, this conference will contribute to meeting such a challenge.
And I believe this conference will also provide clues to how to map out charts through
troubled waters.

Thank you for your attention.