of reserving access to influencing monetary policy whenever a currency loses value. governments seeking re - election often have an incentive to achieve short - term benefits through inflation without considering its long - term costs. in view of the temptations inherent in the political process, a society can signal its determination to safeguard the stability of its money only by choosing the appropriate institutional arrangement. in this context, the independence of the central bank is a necessary, but not sufficient, condition. * * * bibliography barro, r. j. and d. b. gordon ( 1983 ) : “ rules, discretion and reputation in a model of monetary policy ”, journal of monetary economics, vol. 12, pp. 101 - 21. bockenforde, e. - w. ( 1997 ) : welchen weg geht europa?, carl friedrich von siemens stiftung, munich. capie, f. ( 1997 ) : “ central bank statutes - the historical dimension ”, in : die bedeutung der unabhangigkeit der notenbank fur die glaubwurdigkeit der europaischen geldpolitik, volkswirtschaftliche tagung 1997 der oesterreichischen nationalbank, may 13 / 14, vienna, pp. 43 - 55. cukierman, a. ( 1992 ) : central bank strategy, credibility, and independence : theory and evidence, the mit press, cambridge, mass. dornbusch, r., c. a. favero and f. giavazzi ( 1998 ) : “ a red letter day? ”, paper delivered at the bis and cepr convention “ asset prices and monetary policy ” in basle on january 26 - 27, 1998. - 12 - eijffinger, s. c. w. and j. de haan ( 1996 ) : the political economy of central bank independence, special papers in international economics, no. 19, may, international finance section, dept. of economics, princeton university. emi ( 1997 ) : the single monetary policy in stage three - elements of the monetary policy strategy of the escb, february, european monetary institute, frankfurt am main. feldstein, m. ( 1997 ) : the political economy of the european economic and monetary union : political sources of an economic liability, national bureau of economic research, working paper 6150. imf ( 1997 ) : world economic outlook, october, international monetary fund, washington,

, when the conference of maastricht took place in december 1991, the national central banks of most of the signatory countries were institutions that were more or less dependent on their governments. bearing that in mind, the decision in favour of the european system of central banks ( escb ) and the european central bank ( ecb ) is all the more remarkable. ii. the new institution mistrust of the currency is inevitably reflected in corresponding risk premiums in the interest rate, and thus costs a country dearly. the statute assumes particular significance precisely in the case of a new currency and a new central bank - it is an important signal of what monetary policy and what money the public can expect. “ institutions reduce uncertainty by constraining human action. thereby, they enable economic actors to form expectations about the actions of others. ” ( streit et al., 1997, p. 688. ) will the statute of the european central bank meet these requirements? is it suited to creating credibility for the institution even before its start? credibility credibility and reputation have been developed out of a neo - classical concept of monetary policy - making, based on the natural rate of unemployment and rational expectations ( spahn, 1997, p. 235 ). barro and gordon ( 1983 ) argued that central banks are likely to suffer from a credibility problem. this credibility problem stems from the assumed goal of increasing employment above its natural rate by means of inflationary surprises. rational private agents anticipate this outcome and react by increasing the expected rate of inflation. the result is an inflationary bias without any effect on employment. however, in a multi - period setting, precommitment of monetary policy to adhere to price stability may be possible. if the public is decidedly averse to inflation, it would be difficult to break inflationary expectations after a surprise inflation had been triggered deliberately. this would make the subsequent process of disinflation more costly and thereby effectively discourage monetary policy - makers from using the means of “ surprise inflation ” in the first place. inspired by rogoff ( 1985 ), some have suggested that credibility problems of optimal monetary policy could be mitigated by delegating monetary policy to an independent central bank. the role of the government is then to determine the institutional framework of monetary policy - making with the central bank actually implementing the policy. however, jensen ( 1997 ) has raised the question of why delegating monetary policy should be more credible than implementing optimal monetary policy