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US banks get euro jitters

Old Lady assures Americans that City will still have central role
US BANKERS are worried that the euro may be based on flawed economic foundations when it is introduced next year, according to David Clementi, deputy governor of the Bank of England.

Mr Clementi returned from the US on the first leg of a global tour to reassure investors of London's status as a leading international financial centre after the introduction of the euro. "There are concerns whether economic convergence will be based on high growth with low unemployment, or the other way round," he said.

On Monday, the deputy governor flies to Asia on the second leg of his world tour, ready to dismiss Frankfurt's threat to London's primacy as Europe's financial capital now that the German city is home to the European Central Bank.

"The analogy between Washington and New York is a good one," he said. "The policy will be made in Frankfurt, but the business and trading will take place in London."

Mr Clementi added: "A good deal of business in the bond and derivatives markets may move to Frankfurt, but the European equity and foreign exchange markets will stay in London. In foreign exchange, the dollar-mark business is based in London, so we can expect euro-dollar business to be based in London after 1999.

The Bank's deputy governor denied that the UK's absence from Target, the interbank transfer system for the euro zone, would seriously hamper the City's position in the global financial marketplace. "Eurochaps, our own system, will be able to access Target and, apart from some issues of intra-day liquidity, it is not of major concern," he said.

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