A4-0341/98

Resolution on foreign currency reserves in the third stage of EMU

The European Parliament,

- having regard to the establishment of the European System of Central Banks and stage three of EMU,

- having regard to Articles 30 and 31 of the Statute of the European System of Central Banks and the European Central Bank (hereinafter referred to as 'the Statute'),

- having regard to the 1997 Annual Report of the European Monetary Institute (C4-0313/98),

- having regard to the decision of 8 July 1998 by the Board of Governors on foreign reserve assets,

- having regard to Rule 148 of its Rules of Procedure,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0341/98),

A. whereas Article 30(1) of the Statute states that the European Central Bank shall be provided by the national central banks with foreign reserve assets, other than Member States' currencies, ECUs, IMF reserve positions and SDRs, up to an amount equivalent to ECU 50 000 million,

B. whereas Article 106(6) of the Treaty allows the Council, after consulting the European Parliament and the European Central Bank, to adopt provisions referred to in certain Articles of the Statute and whereas Article 30(4) of the said Statute allows the European Central Bank to effect further calls of foreign reserve assets beyond the limit set in Article 30(1),

C. whereas the exact amount to be called up by the European Central Bank may therefore be lower than, equal to or in excess of an amount equivalent to ECU 50 000 million,

D. whereas the term 'foreign reserve assets' is general in scope and does not in itself imply an exclusion of gold reserves for transfers of reserves from the national central banks to the European Central Bank,

E. whereas the contribution of each national central bank will be fixed in proportion to its share in the subscribed capital of the European Central Bank (in the key for subscription of the ECB's capital),

F. whereas in accordance with Article 29 of the Statute the key for the subscription of the capital of the European Central Bank assigns each NCB a weighting equal to the sum of 50% of the share of the respective Member State in the Community population and the sum of 50% of the share of the respective Member State in the Community GDP at market prices,

G. whereas foreign reserve assets held by the national central banks of the future European System of Central Banks are well in excess of the amount to be transferred to the European Central Bank,

H. whereas Article 31(1) of the Statute allows the national central banks of the ESCB to perform transactions in their foreign reserve holdings in fulfilment of their obligations towards international organisations and whereas according to Article 31(2) and 31(3) of the Statute, the Governing Council will set a threshold beyond which all other transactions in foreign reserve assets will be subject to approval by the European Central Bank,

I. whereas decisions concerning interventions on the foreign exchange markets will be the exclusive preserve of the ECB, even if these interventions are generally implemented in a decentralised manner by the national central banks, which does not exclude the possibility in some circumstances - which should be exceptional - of the ECB itself intervening on the foreign exchange markets,

J. whereas a significant share of the foreign exchange reserves currently held by the national central banks that will be part of the future ESCB is denominated in Member States' currencies which will be converted into euros at the start of stage three of EMU and consequently cease to count as foreign exchange reserves, becoming 'internal assets',

K. whereas the national central banks of the ESCB have traditionally held substantial foreign reserve assets for two principal reasons, namely to carry out interventions to prevent exchange market disturbances and to cover possible external balance of payments deficits,

L. whereas with the start of stage three of EMU, interventions on the foreign exchange markets among the countries adopting the single currency will be neither necessary nor possible and whereas such interventions will be limited to third countries' currencies,

M. whereas with the start of stage three of EMU, much of what used to be exports and imports between Member States of the European Union will become internal trade between the members of the euro area and whereas this will further reduce the need for foreign reserve holdings,

N. whereas during the transitional period of the introduction of the euro large holdings of foreign reserve assets may constitute a real advantage as this raises the cost of a possible speculative attack against the single currency and may prove to be a stabilising factor especially during this crucial period,

O. whereas any reduction in the holdings of foreign reserve assets in the ESCB must take into account the possible effects this may have on exchange rates, the price of gold and other financial markets,

1. Considers it necessary to address the question of foreign exchange reserves in stage three of EMU for the following reasons:

- stage three of EMU will completely change the monetary policy framework for the Member States of the euro area and will therefore partially render some of the motivations for large reserve holdings obsolete, at least after the completion of the transitional period for the introduction of the euro,

- in order to attain an optimal level and composition of reserves in EMU, portfolio changes and a gradual running down of reserve holdings may be required, which in turn will have effects on the exchange rate of the euro, the price of gold and other financial markets,

- with the start of stage three of EMU there will be quasi-automatic portfolio changes for the national central banks as foreign exchange holdings denominated in participating Member States' currencies will be redenominated in euros and thus cease to count as foreign exchange reserves;

2. Stresses that trade within the euro zone will continue to increase, and that foreign currency reserves no longer need to be held for such trade, because much of what used to be external trade will then become internal trade;

3. Argues that the volume of external trade provides a necessary but not sufficient criterion for calculating the optimal level of foreign reserve holdings and that, in terms of their volume and their reversibility, capital flows and in particular portfolio investments are more important still;

4. Is aware of the fact that the redenomination of former foreign exchange reserves in euros will lead to a considerable reduction of the level of foreign exchange reserves in the ESCB, although this reduction will not be sufficient to offset the effects of a diminished need for reserve holdings caused by a significantly reduced volume of external trade;

5. Regards the possibility of the ESCB carrying out interventions on the foreign exchange markets as another major determinant for the optimal level of reserve holdings;

6. Points out that as of 1 January 1999 such interventions within the euro area will cease to exist and that this will further reduce the necessary amount of foreign reserve assets holdings;

7. Concludes therefore that with the start of stage three of EMU the total level of reserve holdings in the ESCB will be in excess of an optimal level of foreign reserve assets;

8. Emphasises, however, that a level of reserves which constitutes a surplus by international comparison will be highly beneficial for the transitional period for the introduction of the single currency because it will make speculation against the euro more expensive and points to the fact that the new currency will be backed by vast reserve holdings amounting to an equivalent of approximately US$ 400 bn in the ESCB, which will have a stabilising effect;

9. Is therefore not in favour of reducing the reserve holdings of the ESCB during the transitional phase of the introduction of the euro;

10. Considers a carefully planned reduction of foreign reserve assets at a later time desirable, as this will help to achieve an optimal level and portfolio of reserve holdings in the ESCB in the long term;

11. Emphasises, however, that any reduction of foreign reserve assets in the ESCB may have an effect on the exchange rate of the euro, in particular against the US dollar, and may be implemented only gradually and with the utmost caution in order to avoid disruptions in the foreign exchange markets;

12. Is aware of the fact that the euro will have to establish itself as a world currency during the initial phase after its introduction and that the outcome of this process will determine the scope for future decreases in reserve holdings;

13. Considers that the euro will be a stable currency and that it will develop a high level of credibility as is to be expected from the sound foundations on which it is built;

14. Regards the likely scenario of a hard euro from the very beginning of stage three of EMU as a limiting factor for possible reductions in the foreign exchange holdings because selling off US dollar reserves would lead to a further appreciation of the euro which may not be desirable and therefore takes the view that the scope for reducing reserve holdings will also depend on the future exchange rate of the euro against the US dollar;

15. Takes into account that the scope for reducing foreign reserve holdings in the ESCB will also depend on the future role of the euro as an international reserve currency;

16. Approves the decision of 8 July 1998 by the Board of Governors of the ECB to make an initial transfer in gold of 15% of foreign reserve assets from the national central banks to the European Central Bank for the following reasons:

- gold reserves are traditionally seen as an important element for the credibility of and confidence in a majority of the participating Member States' currencies,

- the 15 Member States currently hold some 31% of their reserves in gold, a fact which should be reflected in the transfer of reserves to the ECB,

- the inclusion of gold in the ECB's reserves would facilitate the transfers of foreign reserve assets to the ECB for those participating Member States whose central banks hold a large proportion of their reserves in gold,

- the inclusion of gold in the ECB's reserve holdings would also have a stabilising effect on the price of gold which has recently decreased;

17. Calls, in view of the high levels of the national central banks' foreign currency reserves held in gold, for a gold euro coin to be minted, a decision which might also have a stabilising effect on the price of gold;

18. Calls upon the European Central Bank, as part of the decisions it has to take before the end of the year on the issue of foreign currency reserves, to issue clear guidelines which lay down rules for the division of tasks between the ECB and the national central banks and define all operating procedures concerning the administration of foreign reserve assets, inter alia as regards the practical conditions for the holding of such assets by the ECB and how they are denominated (in euros or in foreign currency), particularly in the light of the effects in terms of the allocation and distribution of gains and losses generated by these foreign currency reserves;

19. Calls, in the light of the crises and turbulence on world financial markets, for an agreement between the European Central Bank and the American Federal Reserve on the management of foreign currency holdings;

20. Instructs its President to forward this resolution to the European Central Bank, the National Central Banks of the Member States, the Commission and the Council.