BASEL, Switzerland -- Contrary to what some American customers of derivatives are finding, the Bank for International Settlements claims that the instruments are likely to improve the efficiency of underlying markets and, under normal circumstances, have a stabilizing influence on them.

In a report released Friday, a standing committee of the Group of Ten (G-10) countries said that the growth of derivatives markets is unlikely to materially affect the conduct of monetary policy.

Although derivatives may amplify market movements and possibly influence monetary policy during periods of stress, they do not interfere with the pursuit of price stability, the report said.

It emphasized that the instruments are unlikely to affect the ability of central banks to set a desired level of short-term interest rates and thereby control inflation, but could reinforce or diminish the effects of central bank intervention.

Thus, the committee's report concluded, "central banks will need to take greater care to ensure that their policies ... facilitate the formation of stable, noninflationary expectations."

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