Mr. Duisenberg's statement to the European Parliament's Subcommittee on
Address by the President of the European Central Bank,
Monetary Affairs
Dr. W. F. Duisenberg, in Brussels on 22/9/98.
This is the first time that I, in my capacity as President of the European Central
Bank (ECB), have the privilege to appear here at the European Parliament in accordance with
Article 109b(3) of the Treaty. Today I should like to inform you, first, of the decisions that have
been taken by the ECB since July and, second, of our schedule for the work still to be completed
during the remainder of 1998. Afterwards I shall be happy to answer your questions.
First and foremost I should like to stress that our preparatory work for Stage Three
of Economic and Monetary Union (EMU) is proceeding on schedule. You may be aware that we
held two sets of meetings this month: meetings of the Governing Council of the ECB and of the
General Council of the ECB on 1 September 1998, and an additional meeting of the Governing
Council on 11 September 1998. We decided to hold a second meeting in September because we
felt that with regard to the long lead-time, especially in those areas in which the preparatory work
of our counterparties, i.e. the credit institutions, is affected by our decisions, we should move
things forward faster. Today I am in a position to present to you quite a long list of important
decisions taken recently by ECB bodies. I think that the list demonstrates that we have made very
good progress in a number of areas. Let me please elaborate on the most important decisions
relating to the preparatory work for Stage Three of EMU.
A. State of preparatory work
1. Exchange rate policy co-operation between the euro area countries and other EU Member
States
The General Council endorsed the text of an Agreement between the ECB and the
non-euro area national central banks, laying down the operating procedures for an exchange rate
mechanism in Stage Three (the so-called ERM II). You will recall that the European Council in
Amsterdam in June last year agreed to set up an exchange rate mechanism in Stage Three to
replace the present European Monetary System (EMS). For this reason, the EMI prepared a draft
Central Bank Agreement on the replacement of the current exchange rate mechanism with a new
one in Stage Three. It is this Agreement which has now been signed by myself, as President of
the ECB, and by the governors of the four non-euro area national central banks. The signing of
this Agreement by the latter parties implies their acceptance of the operating procedures. It does
not, however, imply their participation in ERM II.
For the currency of each Member State participating in the mechanism, a central
rate against the euro and a standard fluctuation band of ±15% will be defined, in principle
supported by automatic unlimited intervention at the margins, with very short-term financing
available. However, the ECB and the participating non-euro area national central banks could
suspend automatic intervention if this were to conflict with their primary objective of
maintaining price stability. In line with the Resolution of the European Council, exchange rate
policy co-operation may be further strengthened, for example by allowing closer exchange rate
links between the euro and other currencies in the exchange rate mechanism, where, and to the
extent that, this is appropriate in the light of progress towards convergence.
2. General documentation on ESCB monetary policy: instruments and procedures
Last Friday, 18 September 1998, the ECB published a report entitled "The single
monetary policy in Stage Three: General documentation on ESCB monetary policy instruments
and procedures". This report contains a detailed description of the monetary policy instruments
and procedures to be applied by the ESCB in Stage Three of EMU. Hence it provides credit
institutions with the information they need in order to prepare for participation in ESCB
monetary policy operations as from 1 January 1999. The report expands upon and updates the
material contained in an earlier version which was published by the EMI on 23 September 1997.
The report first sets out the criteria to be fulfilled by credit institutions in order to
be eligible as counterparties to ESCB monetary policy operations. It then presents the features of
the different types of open market operations which might be conducted by the ESCB and the
ESCB's two standing facilities (the marginal lending facility and the deposit facility). The report
also contains a detailed description of the procedures related to the various types of operations,
and specifies the eligibility criteria and the risk control measures to be applied to assets
underlying the ESCB's liquidity-providing operations. Moreover, the report includes the
description of the features of the ESCB's minimum reserve system and sets out specific
provisions to be applied for the ESCB's monetary policy instruments and procedures in the
transition to Stage Three.
In this context I should also mention that on 11 September 1998 the Governing
Council of the ECB endorsed the statistical framework on the basis of a number of reports that
had been prepared by the EMI - many of which had been published in the past - thereby
confirming the ECB's statistical requirements for Stage Three. The reporting framework for the
money and banking statistics of the ECB is included in the "General documentation".
Furthermore, on 11 September 1998 the Governing Council endorsed a list of
eligible securities settlement systems following an assessment of such systems against standards
that had previously been laid down for their use in the credit operations of the ESCB. The list,
which indicates those securities settlement systems that will be used by the ESCB and the
conditions for their use, is set out in the "General documentation" as well.
3. Technical preparations for the euro banknotes
The technical preparations for the euro banknotes are proceeding according to
schedule. The origination, i.e. the process of converting the designs into banknotes, has now been
successfully completed. A zero-production run will be conducted in the autumn before mass
production starts in early 1999.
The Governing Council of the ECB decided on 11 September 1998 that there will
be no national feature on the euro banknotes. It also confirmed, in line with previous
recommendations made by the EMI, that the following seven banknote denominations will be
issued: 5, 10, 20, 50, 100, 200 and 500.
4. Schedules for the meetings of the Governing Council and General Council
In addition to its meetings scheduled for 13 October, 3 November and 1 December
1998, the Governing Council of the ECB has agreed to hold a further meeting on 22 December
1998. The Governing Council's final meeting before the start of Stage Three will be devoted
primarily to fine-tuning its last-minute preparations. The Governing Council has also decided
that during the first year of Stage Three its meetings shall, as a rule, be scheduled to take place on
Thursdays every other week, starting on 7 January 1999. Furthermore, the General Council has
agreed that the current practice of holding quarterly meetings on the same day as meetings of the
Governing Council should continue in Stage Three.
As far as the information policy of the ECB is concerned, I should like to mention
that the ECB intends to hold a press conference, as a general rule, once a month. For the first
three months of 1999, it envisages holding a press conference immediately after the first meeting
of each month. It is my aim to pursue a policy of actively informing the public about the ECB's
decisions and the rationale behind them. In addition to press conferences, the public statements
of the members of the Governing Council and the ECB's regular publications will also contribute
to achieving this goal. In its regular publications, for example, the ECB will report thoroughly on
all aspects relevant to the conduct of the single monetary policy in the euro area. In particular,
they will supply a detailed analysis of the developments upon which the respective monetary
policy decisions are based. Apart from the publications foreseen in the Treaty, of which the
Annual Report and the Quarterly Report are the most important ones, the ECB intends to publish
a Monthly Bulletin.
In order to give a well-rounded picture I should like to draw your attention to one
of the most recent ECB publications, the "Report on electronic money", before I turn to our
schedule for the remainder of 1998.
* The "Report on electronic money"
On 31 August 1998 the ECB published a "Report on electronic money". The
report deepens the analysis of the implications of prepaid cards conducted by the EMI in 1994
and extends it to new forms of electronic money, i.e. software-based electronic money products
which have since started to evolve. The main findings of the study were published in the Opinion
of the EMI Council on the issuance of electronic money, which is contained in Chapter III of the
EMI's Annual Report 1997.
Although electronic money is not a widespread phenomenon at present, it is likely
to have significant implications for monetary policy in the future. In this regard, it must be
ensured that, in particular, price stability and the unit-of-account function of money are not put at
risk. There are a number of additional regulatory concerns regarding electronic money which also
have to be taken into account, such as the efficient functioning of payment systems and
confidence in payment instruments, the protection of customers and merchants, the stability of
financial markets and protection against criminal abuse.
With a view to ensuring monetary policy effectiveness and a level playing-field,
and in order to address the regulatory concerns I have just outlined, the ECB regards it as
essential that certain minimum requirements be fulfilled (see Chapter 4 of the Report).
I would like to stress in this context that the ECB follows with interest and close
attention the European Commission's work on a directive on electronic money and expects to be
officially consulted in due time.
B. Schedule for the remainder of 1998
Given the huge volume of work to be completed during the remainder of the year
it seemed to us appropriate to give priority to those issues relevant to credit institutions'
preparatory work for Stage Three. The above-mentioned "General documentation" is one
example of this, since credit institutions' preparations for participation in ESCB monetary policy
operations as from 1 January 1999 were to a large extent dependent on the decisions to be taken
by the Governing Council. Given the lead time in this field I consider the approach adopted to be
very helpful.
The need to set priorities was also a major factor in opting to schedule our
decision on euro area's monetary strategy for the autumn of this year. The determination of a
strategy for the single monetary policy is a very important decision to be taken. Nonetheless, the
outcome of our proceedings does not have such a direct impact on our counterparties'
preparations for Stage Three as the operational framework. Moreover, another reason for not yet
having taken definite decisions regarding the monetary policy strategy is that the matter requires
very thorough consideration. The Governing Council has already started with this discussion
which will continue for some time. I can assure you that there are no fundamentally diverging
opinions within the Governing Council concerning the orientation of our future monetary policy
strategy. In this context, allow me to remind you that the EMI had already achieved a broad
consensus regarding the monetary policy strategy. In particular, certain strategies, such as
exchange rate targeting or nominal income targeting were explicitly excluded some time ago.
Moreover, it was pointed out that the implementation of the two potential candidate strategies
that had been identified, namely monetary targeting and direct inflation targeting, may, in
practice, be relatively similar. A combination of elements of both strategies was also considered
as a possibility. Finally, there was no doubt within the EMI Council, that monetary policy
decisions should be based on a broad range of indicator variables and that money would be
assigned a prominent role, with either targets or monitoring ranges set for its growth, provided
that money demand is sufficiently stable. The Governing Council of the ECB will continue to
discuss the specification of the strategy along these lines over the months to come. The
Governing Council will then specify the exact formulation of its strategy and its implementation
in 1999 before the start of Stage Three.