At an event in Brussels entitled "Towards a European foreign economic policy", Bini Smaghi gave arguments in support of the euro flexible exchange rate, saying that such a system has allowed the ECB to focus on price stability rather than FX movements.

Nevertheless, Bini Smaghi added that, despite the euro's flexible exchange rate system, policy makers still had a role to play in FX markets.

"Exchange rate markets are prone to episodes of overshooting and undershooting," the central banker noted. "Public intervention - in the form of public statements or even outright interventions in FX markets - may thus be warranted."

However, Bini Smaghi warned against using the exchange rate to gain a competitive advantage.

"Using the exchange rate as an instrument to gain a competitive advantage over others may fuel resentment and stoke protectionist measures," Bini Smaghi said.

The policy maker also said that verbal discipline is needed regarding FX and that he refuses to comment on current exchange rates, adding that only the ECB and Eurogroup presidents should make such comments.

Bini Smaghi added that the adopting the euro is the best FX decision Europe has taken, and that the currency has helped to shield the region from external turmoil.

Furthermore, the ECB member said called on further unity within Europe regarding foreign ecnonomic policy.

"If Europe wants to punch in proportion to its economic weight, moving towards a common foreign economic policy is essential," Bini Smaghi said

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