The wide range of instruments available to the ESCB for the implementation of the euro area monetary policy has been established with reference to two fundamental criteria: efficiency and neutrality. These instruments can be separated into three categories, related to open market operations, standing facilities and minimum reserves.
The ESCB's instruments and procedures do not differ significantly
from those traditionally used by the Banco de Espaсa and with which you are
all familiar. This means that I only need to highlight a few differences.
In addition, I should add that over recent weeks the Banco de Espaсa has
introduced changes aimed at facilitating a smooth transition.
With regard to open market operations, the frequency and maturity of the main re-financing operation has become that of a weekly auction of loans with a maturity of two weeks, and an interest rate which is either announced in advance (fixed rate auction) or announced later as the result of offers received (variable rate auction). There will also be monthly auctions for three-month loans which will always be of the variable rate type in order to avoid sending signals to the market. Fine-tuning will be carried out in exceptional circumstances between two regular auctions and, finally, the structural liquidity demand can be influenced by means of open market transactions which consist in the direct purchase and sale of securities or the issuance of debt certificates.
Standing credit and deposit facilities will supply or absorb overnight liquidity, without the imposition of any other restrictions on their use by institutions other than the provision of guarantees or collateral. Both types of interest on standing facilities constitute a strip or corridor which will contain short-term market interest rate swings and provide a structure for monetary policy trends. This means that they will play an important role in terms of providing signals, a role also fulfilled by the Banco de Espaсa but in a less predetermined and formalised manner.
As far as guarantees for all these transactions are concerned, it should be stated that acceptable collateral may take the form of either a public instrument or a private instrument, provided that these are of a suitable nature, according to the neutrality principle applied to the public sector and to the private sector.
The minimum reserves will be equal to 2% of book liabilities
calculated on the basis of a monthly average, will be subject to a minimum
exempt level of EUR 100,000 and - this being the most important point
underlining the main difference compared with the current position in Spain
- will be remunerated in line with market rates. The averaging provision
will allow us to absorb liquidity shocks without recourse to standing
facilities. Such a minimum reserves will constitute a useful tool for
restricting the volatile nature of monetary market interests rates, for
reducing the need for fine-tuning and for tightening up the system's
liquidity, thereby enhancing the effectiveness of the monetary policy. Its
remuneration in line with the market will not only reduce money demand
elasticity with regard to interest rates but also offer neutrality to euro
area banks as compared with those in other countries which do not use such
a tool.
Conclusion
Although inevitably in a simplified form, I hope that this statement on the aims, strategy and instruments of the euro area monetary policy has provided some basic information on the central core of the ECB's operations and that it can be used as a starting-point for our discussions.
Thank you for listening; during the discussion period, I shall be pleased to elaborate on the issues raised or examine any others which you think may be of interest.
The monetary policy of the Eurosystem
Main remarks of the speech delivered by Eugenio Domingo Solans
Member of the Governing Council and the Executive Board of the
European Central Bank at the SOCIETAT CATALANA D'ECONOMIA
(Institut d'Estudis Catalans)
Barcelona, 2 July 1999
The text will be available in Catalan at a later stage.
* The primary objective of the Eurosystem and, therefore, the touchstone to
measure its success is the achievement of price stability. In the medium
term the best contribution that the Eurosystem can make in favour of
sustained growth is, precisely, to create an environment of stability.
There is clearly no greater fertiliser for economic growth than price
stability, and nothing is more refractory to economic growth than
inflation. Provided that stability is achieved and that there is no risk
for stability in the future, the Eurosystem has to create the best monetary
conditions for exploiting the considerable growth potential of the euro
area. This should be done in a passive way, without any activism: like the
air we breathe, not like the air from an oxygen tank.
* The 5.2% increase in the three-month moving average of the 12-month
growth rates of M3 covering the period from March PROGRAM
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аto May 1999 is in line with the 4 Ѕ reference value for money growth,
which is the basis of the first pillar of the ECB's monetary policy.
Neither the slight increase in the moving average compared to its value
last month (5.1%) nor the non-substantial and almost constant difference
from the reference value signal a risk for price stability.
* The results of the broadly based assessment of the outlook for price developments, which constitutes the second pillar of the ECB's strategy, confirm that there is no risk to price stability in the euro area.
* The second pillar of the ECB's monetary policy strategy includes, among other indicators, the exchange rate developments of the euro. The ECB's assessment on the evolution of the exchange rate of the euro should, therefore, be linked to the risk for price stability of a depreciation of the euro. Taking into account that the euro area economy is a rather closed one, no significant inflationary impact should be expected from the recent exchange rate developments of the euro.
* One main feature of the instruments and procedures of the Eurosystem's monetary policy is their high level of flexibility, in the sense that without discretionary changes the instruments can accommodate a wide range of different market situations. On the other hand, there is flexibility in the sense that the Eurosystem has at its disposal a wide set of monetary policy instruments and has, therefore, the possibility to move from one to the other if and when it is deemed appropriate, taking into account their advantages and disadvantages. In the first stage of the ECB's monetary policy, the fixed rate tender with a discretionary allotment is the best choice for the main refinancing operation owing to its advantages in terms of signalling effects and controlling both the liquidity allotted and the volatility of overnight rates. On the contrary, in the case of longer-term refinancing operations, the Eurosystem as a rule does not intend to send signals to the market and the effects on the liquidity and on the overnight rates are weaker. Therefore, for longer-term refinancing operations, the market-oriented variable rate tender has a clear advantage.
* The activities and the monetary policy decisions of the ECB should be interpreted from a euro area perspective as a whole. To interpret them from a national standpoint would be a mistake.
***
THE ROLE OF THE CENTRAL BANK IN THE UNITED EUROPE
Speech by Dr. Willem F. Duisenberg,
President of the European Central Bank,
National Bank of Poland,
Warsaw, Poland on 4 May 1999
1. Introduction
First and foremost, I should like to congratulate the National Bank
of Poland (the NBP) on its 75th anniversary. The age of the NBP already
suggests that as the President of the European Central Bank (ECB), an
institution that is even less than one year old and has only been
conducting monetary policy since January this year, I should be modest. I
am aware that the role of the NBP has not been constant over these 75 years
and that in the past decade, in particular, the NBP has gone through a
remarkable restructuring process. My previous central bank, de
Nederlandsche Bank, has, together with the International Monetary Fund and
many national central banks, been involved in assisting the NBP in its
efforts to adapt to the role of a central bank in a market economy. Of
course, the real work had to be done by you yourselves and I believe you
can be proud of what has been achieved over the past decade.
Today in my speech I should like to focus on the role of the ECB, as a truly European institution. First of all, I shall explain the background against which the introduction of the euro and the establishment of the ECB should be considered. Thereafter, I shall discuss the main features of the institutional structure that determines monetary policy-making. I shall then turn to our monetary policy strategy and the role of accountability and transparency in this strategy. I shall conclude by briefly addressing the issue of EU enlargement.
2. The process of European integration
On 1 January of this year the euro was introduced in 11 countries with a combined population of almost 300 million. The ECB started to conduct a single monetary policy for the so-called euro area. Former national currencies, such as the French franc and the German Mark are no longer autonomous currencies, but subdivisions of the euro. Euro banknotes and coins will only be introduced in 2002.
The voluntary transfer of monetary sovereignty from the national to
the European level is unique in history. However, it should not be seen as
a single, isolated event. The introduction of the euro is part of the
process of European integration. This process started shortly after the
second World War and has now been under way for more than half a century.
The aims of European integration are not only, or even primarily, economic.
Indeed, this process has been driven and continues to be driven by the
political conviction that an integrated Europe will be safer, more stable
and more prosperous than a fragmented Europe. It is true that economic
integration has been the main engine of this process and that, although it
has had its ups and downs, integration has delivered important economic
benefits. On balance it has been successful.
The introduction of the euro and the establishment of the ECB are
important new steps in this process of European integration. They are not
the completion of this process, for at least two reasons. First, the launch
of the euro can be compared to the launch of a rocket. A good launch is
crucial, but only the beginning of the mission. The euro has been launched
successfully. The challenge now is to make it a success. This will not
happen automatically, but will require effort on the part of many
authorities, institutions and people. Second, four EU Member States have
not (yet) introduced the euro. I hope that this will happen in the future.
Moreover, as you are aware, the EU itself is likely to increase its
membership over time, also to include Poland. Ultimately, this is bound to
extend the euro area. This process, too, is already requiring and will
continue to require great efforts: no pain, no gain, as is often the case.
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