The list of assets that are eligible as guarantees for liquidity
providing operations will be made public on the Internet site of the ECB.
The list will be updated on a weekly basis and users will be able to
subscribe to an e-mailing facility for receiving certain designated parts
of the list on a regular basis. Users will also be able to query the list,
which will contain a large number of assets.
The list of institutions subject to minimum reserves, that is, credit
institutions established in the euro area, will also be available on the
Internet site of the ECB, together with the list of all monetary and
financial institutions in the European Union.
5. Concluding remarks
We are less than three months away from the moment when monetary policy sovereignty is transferred from the NCBs to the ESCB. The bulk of the preparatory work has already been completed, but major decisions - above all, the choice of a monetary policy strategy - still have to be made. The public can be certain that we will always inform them, regularly and comprehensively, about our considerations and deliberations. We will make all our decisions transparent. I have no doubt that we will be well prepared for the moment at which we take over responsibility for monetary policy in the euro area.
The euro as an international currency
Speech delivered by Eugenio Domingo Solans,
Member of the Governing Council and the Executive Board of the
European Central Bank, at The Athens Summit '99, in Athens on 18 September 1999
Thank you for inviting me to the Athens Summit '99 and for giving me the opportunity to speak to you at this important event.
I should like to share with you my views, and the ECB's views, on the importance of the euro as an international currency. I understand that this issue may be of interest to experts from Greece, a "pre-in" country which intends to join the euro area, and to many participants from countries outside the euro area and the European Union, some of which currently have exchange rate regimes related to the euro.
Nowadays the euro is the second most widely used currency in the world economy, behind the US dollar and ahead of the Japanese yen. As we all know, any currency fulfils three basic functions: it is a store of value, a medium of exchange and a unit of account. As a store of value the use of the euro as an investment and financing currency is rapidly increasing, as investors understand the advisability of diversifying their portfolio currencies among those which are more stable and more internationally used. The euro is developing at a slower pace as a medium of exchange or payment currency in the international exchange of goods and services. This fact can easily be explained by the combined and reinforcing effects of network externalities and economies of scale in the use of a predominant international currency as a medium of exchange, as is the case with the US dollar. The use of the euro as a unit of account is linked to its use as a store of value and a medium of exchange. The value stored in euro or the payments made in euro will tend to be counted in euro.
There are good reasons to expect an increase in international public use of the euro as a reserve, intervention and pegging currency, inasmuch as the public authorities understand that it is worthwhile to allocate their foreign reserves among the main international currencies and to give the euro a relevant share in accordance with its internal and external stability and the economic and financial importance of the euro area.
In connection with the use of the euro as a pegging currency,
approximately 30 countries outside the euro area currently have
exchange rate regimes involving the euro to a greater or lesser
extent. These exchange rate regimes are currency boards (Bosnia-
Herzegovina, Bulgaria, Estonia); currencies pegged to the euro
(Cyprus, the Former Yugoslav Republic of Macedonia and 14 African
countries in which the CFA franc is the legal tender); currencies
pegged to a basket of currencies including the euro, in some cases
with a fluctuation band (Hungary, Iceland, Poland, Turkey, etc.);
systems of managed floating in which the euro is used informally as
the reference currency (Czech Republic, Slovak Republic and Slovenia);
and, last but not least, European Union currencies pegged to the euro
through a co-operative arrangement, namely ERM II. As you well know,
Denmark and Greece joined ERM II on 1 January 1999 with a ±2.25%
fluctuation band for the Danish krone and a ±15% fluctuation band for
the Greek drachma. Although the euro remains in second position after
the US dollar in terms of its official use, the role of the euro will
increase in the future, without a doubt, especially after the year
2002 when the euro banknotes and coins will begin to circulate.
Taking the current situation as a starting point, the
Eurosystem's position concerning the future international role of the
euro is crystal clear: we shall not adopt a belligerent stance in
order to force the use of the euro upon the world economy. We are
convinced that the use of the euro as an international currency will
come about anyway. It will happen spontaneously, slowly but
inexorably, without any impulses other than those based on free will
and the decisions of market participants, without any logic other than
that of the market. In other words, the internationalisation of the
euro is not a policy objective of the Eurosystem; it will neither be
fostered nor hindered by us. The development of the euro as an
international currency will be a market-driven process, a free
process.
The euro fulfils the necessary conditions to be a leading international currency with the US dollar and not against it. There is enough room for both currencies in the world economy. The necessary conditions for a currency to become an international currency are based on two broad factors: low risk and large size. The low risk factor is related to the confidence inspired by the currency and its central bank, which in turn mainly depends on the internal and external stability of the currency. The low risk factor tends to lead to diversification among international currencies, since diversification is a means to reduce the overall risk; it acts, so to speak, as a centrifugal force. By contrast, the large size factor relates to the relative demographic economic and financial importance of the area which supports the currency; in other words, the "habitat" of the currency. The large size factor, which concerns the demographic, economic and financial dimension, generally tends to lead to centralisation around one or a few key international currencies. It can be seen as a centripetal force, as a virtuous circle, which will tend to lead to an increasing use of the euro as an international currency. Let us consider these two factors in more detail.
The first factor concerns low risk, credibility and stability.
The stability of the euro is a priority for the ECB. Compared with the
idea of stability, the strength of the euro is of lesser importance.
This does not mean that the exchange rate of the euro does not
constitute an element to be considered in the second pillar of the
monetary policy strategy of the ECB, which consists of a broadly based
assessment of the outlook for price developments and risks to
stability obtained from a wide range of economic indicators, the euro
exchange rate being one of them. However, the basic factor that will
determine the importance of the euro as a widely used currency in the
world economy, in addition to the demographic, economic and financial
dimensions of the euro area, is, without a doubt, the stability of the
new currency, understood as a means to maintain the purchasing power of savings.
Stability is the basic requirement for a good currency. It is what we at the ECB want for the euro. We want a stable euro and we are convinced that, in the long term, the euro will derive strength from its stability.
The stability of the euro is the basis for the confidence in and the credibility of the ECB, without which a large international role for the euro would be unthinkable. Stability is the proof of the effectiveness of the institution. Yet in order to be credible it is not sufficient for the ECB to maintain stability. Other parameters of its action must be considered: accountability, transparency and communication, a Europe-wide perspective, etc.
These parameters or conditions for the credibility of the euro are certainly demanding. However, the achievement of these conditions is the aim of all those of us who have responsibilities with regard to the functioning of the Eurosystem.
The second factor, which we have called the large size factor or the habitat of the euro, is important because without a certain critical mass, a currency cannot have international relevance, however high its degree of stability.
The figures relating to the population and the GDP of the euro
area illustrate this. With 292 million inhabitants, its population
exceeds that of the United States (270 million) and that of Japan (127
million). The GDP of the euro area is, on the other hand, equal to 76%
of the GDP of the United States (EUR 5,774 billion compared with EUR
7,592 billion), though it is higher than that of Japan (EUR 3,327
billion). The source of this information, which refers to 1998, is
Eurostat.
However, even more important than the current figures is the
potential for the future development of the euro area, in terms of
population and GDP, if and when the so-called "pre-ins" (Denmark,
Greece, Sweden and the United Kingdom) join the Eurosystem.
The entry of these countries would result in a monetary area of
376 million inhabitants, 39% larger than the United States and almost
triple the size of Japan, with a GDP of EUR 7,495 billion, only
slightly less than that of the United States and 125% higher than that
of Japan.
All these facts and figures which demonstrate the demographic and economic importance of the European Union would be further strengthened by enlargement to eastern Europe. Our continent has a historical, cultural and geographical identity - from the Iberian peninsula to the Urals, with certain additional external territories - which, in the future, may also come to form an economic unit. However that is, for the moment, a distant prospect.
The size or habitat of an economy does not only depend on
demographic or economic factors; it also has to do with the financial
base or dimension of the area. In considering the financial dimension
of the euro area, the first relevant feature to observe is the low
level of capitalisation of the stock markets in comparison with the
United States and Japan.
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