benoit cœure : the european central bank ’ s operational framework in post - crisis times speech by mr benoit cœure, member of the executive board of the european central bank, at the federal reserve bank of kansas city economic symposium “ designing resilient monetary policy frameworks for the future ”, jackson hole, wyoming, 27 august 2016. * * * i would like to make some comments this morning on the challenges that lie ahead for central banks and how our monetary policy frameworks should adapt to them. i will admittedly be asking more questions than giving answers. i won ’ t be giving any definitive guide to the future shape of the ecb ’ s monetary policy framework. what i will offer is my view on some of the key issues on this topic and pose some questions of relevance to policymakers. monetary policy operational frameworks concern the intermediate targets of central banks and how they meet them. this is distinct from monetary policy strategies, which concern the quantitative definition of policy objectives, the horizon over which they should be delivered as well as the organisation and weighting of incoming information. operational frameworks can be designed along two main dimensions : ( i ) the operational target for monetary policy ; and ( ii ) the measures used for implementing that target, which include the mode of liquidity provision or absorption, the counterparties that are eligible to take part in those operations and facilities, and the choice of collateral which is accepted in reverse repo operations. where central banks position themselves along these dimensions is clearly path - dependent but it depends, among other things, on institutions and financial structures. a comparison between the pre - crisis frameworks of the federal reserve and the ecb illustrates the different possible constellations. while both central banks had similar operational targets – de facto one or more very shortterm interest rates – the asset side of the fed ’ s balance sheet consisted mainly of outright holdings of us government bonds, considered as a safe asset. the fed also steered liquidity conditions, at the margin, via repos, whereby the collateral set was narrow and again dominated by that safe asset. by contrast, the ecb, lacking a single fiscal counterpart and operating across multiple jurisdictions, injected liquidity mainly through repos with banks and deployed a wider collateral and counterparty framework ( albeit with appropriate credit safeguards ). credit was provided to around 1, 800 counterparties, against a set of collateral that comprised many different asset classes. the ecb ’ s operational framework proved flexible when the crisis

the potential benefits are more limited, whereas some of the costs may be less acute. similar experiences with dollarisation in some countries show, however, that such a partial euroisation entails some serious risks for citizens, business, banks and the government alike. conclusion let me conclude. 1. as i explained, the structured convergence process towards the adoption of the euro which is laid down in the treaty provides the best guarantee for a smooth inclusion and a mutually beneficial life in the monetary union. against this background, unilateral euroisation is something which we would not support because this would be a way circumventing the stages foreseen by the treaty. 2. i would like to point out that the house of emu is built upon solid foundations. the house of emu is open to newcomers ; it is not a “ closed shop ”. however, we would like to welcome the newcomers through the front entrance, and not via the backdoor. 3. since iceland is a european state, it is of course entitled to apply for eu and subsequently euro area membership. i was asked to provide you with some more information about the time frame of this latter scenario. as iceland is a member of the european economic area, its accession to the eu could proceed relatively smoothly. as for accession to the euro area, the minimum time between joining the eu and joining the euro area is two years. this is because the exchange rate convergence criterion foresees that an applicant euro area country must participate for at least two years – without severe tensions – in the exchange rate mechanism ii. this should allow the applicant country to demonstrate that it can manage its economy without recourse to excessive currency fluctuations, thus mimicking somewhat the conditions under a monetary union. 4. iceland would join the euro area once it fulfils all the convergence criteria. at that point, the central bank of iceland would become part of the eurosystem, its governor would have a seat at the table of the ecb ’ s governing council, and iceland ’ s economy would be considered in taking monetary policy decisions for the enlarged euro area as a whole. thank you very much for your attention.