International Finance: Contemporary Issues

By Dilip K. Das | Go to book overview

10

A EUROPEAN CENTRAL BANKING SYSTEM

Some analytical and operational considerations

Niels Thygesen


INTRODUCTION

The purpose of this chapter is to review briefly some analytical and operational issues which arise at an advanced stage of monetary integration. These issues are relevant to the present rather tightly managed EMS which has developed gradually since 1983, and their resolution could be experimented with in the decentralized and preinstitutional first stage. They are essential in any effort to clarify how monetary policy might be designed and operated in the second stage if a 'gradual transfer of decision-making power from national authorities to a Community institution' has to take place (paragraph 57, the Delors Committee Report, hereafter referred to as 'the Report'). I accept that it may not be possible at the present juncture to propose a detailed blueprint for accomplishing such a transition in stage two, but the considerations in the following sections are kept in sufficiently general terms to incorporate a range of analytical and operational approaches. The chapter is also relevant to the collective management through the proposed ESCB in stage three prior to the introduction of a common currency.

The chapter contains three sections. The first asks how the ultimate objective(s) of monetary and other macroeconomic policies might be formulated to give concreteness to the general description in the Report. The second discusses to what extent intermediate objectives might be helpful in underpinning the attainment of the ultimate objectives. Finally, the third section looks at the possible instruments by which the ESCB and the participating national central banks might discharge and divide their responsibility for monetary policy. Throughout the chapter reference will be made to Table 10.1 which lists ultimate and intermediate objectives and the main policy instruments.

All three subjects raised in this chapter obviously require further analytical work, study of empirical regularities and assessment of practical feasibility. They are treated here in a highly preliminary way, though with some confidence that the issues will have to be addressed in order to prepare properly for the second and third stages outlined in the Report.


ULTIMATE OBJECTIVES

As regards the ultimate objectives of policies in an economic and monetary union the Report states (paragraph 16) that 'these policies should be geared to price stability, balanced growth, converging standards of living, high employment and external equilibrium'.

It is difficult to assess, in the absence of additional precision on the relative weight to be given to these wide-ranging objectives, how procedures may be developed for monitoring whether policies are appropriate. The present chapter assumes that the prime contribution of monetary policy to the

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