The US Federal Reserve chairman, Mr Alan Greenspan, said yesterday that overall economic stability rather than central bank intervention was the best way to prevent exchange market turmoil.

The chairman also told the US House Banking Committee that the euro, introduced on January 1st, "has not been tested yet".

He described the euro as "a very interesting experiment" but said it would take several more years to be truly tested. Mr Greenspan rejected proposals recently floated by Germany for currency "target zones" to control exchange rate movements and said he favoured a floating system.

Given the vast global capital flows, "you are creating all sorts of problems in trying to fix rates, as indeed many of the emerging nations have exhibited in the last two-and-a-half years", he said.

He said central bank intervention was no longer an effective method to achieve a specific exchange rate. "The means that has been used in the past, that is so-called sterilised intervention, just does not work. It may have worked, in part, in the past, but even that's dubious," Mr Greenspan said. He added that the United States would work with its partners in the Group of Seven - Britain, Canada, France, Germany, Italy and Japan - and others on a new international financial system and the regulatory structure that it would need.

"It would be desirable, were it possible, to have much more stable exchange rates than we've seen," he said. "One of the issues undoubtedly will be endeavours to make sure that exchange rates in the context of the total are as stable as we can make them. But if we try to do it in a manner which is counterproductive, it will have very negative effects on the total system."

He predicted that the international community "at the end of the day [will] find an appropriate mix of policy" to supervise financial transactions. Mr Greenspan's comments echoed those made last week by the US Treasury Secretary, Mr Robert Rubin, and reiterated by the US at a meeting last Saturday of G7 finance ministers. Mr Rubin maintained that such measures as "target zones" were less effective in ensuring stability than growth-oriented economic policies.