jens weidmann : independent, stability - oriented central banks are the main anchor of confidence opening speech by dr jens weidmann, president of the deutsche bundesbank, at the deutsche bundesbank ’ s second cash symposium, frankfurt am main, 19 may 2014. * 1. * * introduction : unbacked currencies need anchor of confidence ladies and gentlemen, the austrian poet johann nepomuk nestroy is once said to have wittily remarked : “ the phoenicians invented money – but why so little? ” i cannot guarantee that we will have come up with an answer to this question by the end of the day. however, what i can say is that i am pleased to open today ’ s event and therefore wish to welcome you warmly to the bundesbank ’ s cash symposium. it is the second of its kind – the first was held in 2012 – and is intended to promote professional and personal exchange between the various cash handlers. the professional activities of most of the people in attendance here today revolve around cash. however, cash naturally accompanies the everyday lives of you as individuals as well as the general public – for it is one of the few things that nearly everyone is likely to have on his or her person at all times. sometimes more, sometimes less, but at least enough so as never to be completely out of money. cash not only continues to be the most popular and widely used medium of payment for shopping in germany, but is also a central bank ’ s most visible “ product ”. banknotes and coins have a concrete touch and feel to them and are physically tangible, which is not the case with other “ central bank products ” – such as monetary stability. ladies and gentlemen, in his satirical essay “ brief outline of the national economy ” published in 1931, kurt tucholsky noted sarcastically that “ where money comes from is unknown. it is there, or not – mostly not. ” the fact that banknotes are now almost always issued by central banks and circulated through commercial banks is easy enough for the average citizen to understand. but that does not exhaustively describe central banks ’ role in the cash cycle by any means. in order to understand this role, it is important to also answer the more fundamental question of what exactly money is. in economics terms, the shortest possible answer to this question is that money is what money does. all sorts of objects can function as money if they can be used as

economic knowledge that a stability - oriented monetary policy has to be complemented by a fiscal policy that is similarly oriented to stability in order to be successful in the long run. after all, experience shows that political pressure on central banks regularly rises in line with public debt levels. the aim of such pressure is to mitigate the burden of public debt through lower interest rates. however, a monetary policy that is oriented to government ’ s funding needs and not to monetary stability can lead to higher inflation sooner or later. higher inflation, though, is always at the expense of those who are least able to escape from it. to be more concrete : the cost of accelerating inflation is particularly borne by ordinary people. the other factor is that the stability and growth pact takes account of the particular principle of the structure of monetary union that national fiscal policy has remained the responsibility of the individual member states whereas the single monetary policy, naturally, is decided by a central body. this union of decentralised fiscal policy and single monetary policy entails the risk of unwelcome developments in individual countries ’ public finances weighing on the single monetary policy and at the same time imposing a financial burden on the other member states. in a monetary union, there is, so to speak, an “ inbuilt ” incentive of sorts to run up excessive debt. this incentive derives from the fact that one country can partially pass on the adverse effects of its unsound fiscal policy to the other member states. the interest rate rise that accompanies the borrowing has a less severe impact on the highly indebted country than would be the case without monetary union. the experience of the past few years has certainly shown in all clarity that the risks of excessive indebtedness are not just theoretical in nature. in order, above all, to counteract this risk, the fiscal rules contained in the stability pact represent an inherent stability - policy pillar of monetary union : a pillar which, over the medium - term, creates the conditions not only for monetary stability, but also for economic prosperity. over the medium and long run, sound government budgets and economic growth, in fact, are not mutually exclusive – quite the contrary. the european commission, as the guardian of the treaties, will assume a key role in ensuring that the euro - area member states stick to the fiscal policy path of conformity with stability. however, it is at least as important for each and every individual member state to be aware of the value of sound public finances and