Caesar, Rolf and Dickertmann, Dietrich
Einige kritische Anmerkungen zum Europäischen Währungssystem
Geld- und währungspolitische Gestaltungsmöglichkeiten des Europäischen Währungssystems
Die ECU als Bezugsgröße und Reserveinstrument im EWS
Zur Stellung des Europäischen Währungssystems im Rahmen des Weltwährungssystems
Ober- und Untergrenzen der öffentlichen Verschuldung. Ein kritischer Kommentar zu Ausführungen von Wolfgang Stützel
Grundzüge des Europäischen Währungssystems
Rentenmarkt seit 1978. Eine Chronik mit psychologischen Aspekten
Fragen der Bankorganisation. Führt die verstärkte Marktorganisation der Universalbanken zur Divisionalisierung?
(Bernd A. Frhr. von Maltzahn)
Kaminsky, Stefan Duwendag, D. and Ketterer, K.-H. and Kösters, W. and Pohl, Rüdiger and Simmert, D. B. (Hrsg.)
Geldtheorie und Geldpolitik
(Rudolf C. Klein-Zirbes)
Gehrmann, D. and Scharrer, H.-E. and Wetter, W.
Sicherung gegen Wechselkursrisiken unter den Bedingungen einer floatenden D-Mark
(Bernd H.-J. Kitterer)
Praxis der Bankaufsicht
Aus meinem Leben Paul Wallich: Lehr- und Wanderjahre eines Bankiers
(Richard A. Tilly)
Caesar, Rolf and Dickertmann, Dietrich
Some Critical Observations on the European Monetary System
There is nothing new about the European Community's efforts to attain a common monetary policy. The start of the European Monetary System (EMS) on March 13,1979, initiated the final phase in this development. The European parity-grid-system - the socalled snake -,already set up in 19,72 has clearly placed its stamp on the new system. However, the following important changes must be stressed: The introduction of the ecu as a unit of account and a yardstick, and also as a means of payment; the incorporation of the so-called, divergence limit, in the band concept; the considerable expansion of the credit mechanisms with simultaneous prolongation of credit periods and enlargement of the group of participating countries. In any case, it is clearly evident that the system is substantially more complicated than the snake. The lacking lucidity, however, cannot hide the weaknesses of the European Monetary System: First of all, considering things from a national viewpoint, the additional disturbance factors must be pointed out, which may have consequences for a consistent monetary policy in general and for a monetary growth strategy in particular. Over and above this, however, a number of more speculative arguments can be advanced concerning the possibilities of a money-supply policy harmonized at EC level, which under certain circumstances might give grounds for a less negative judgment of the EMS. So far, insufficient attention has been given to the transfers included in or linked with the EMS. Without these components, the system would hardly have been approved and started up. Apart from the public finance and capital market consequences of open transfer of resources, also the hidden interest subsidies connected with the credit mechanisms are involved. These payments must be regarded as anticipation of a European fiscal adjustment system, the configuration of which is not yet discernible. Conjectures that the prime object in creating the EMS, was attainment of these additional financing possibilities would seem to be not entirely unjustified. Over and above its significance for monetary policy and public finance, the new system has more far-reaching political implications: On the one hand, there are the relations between government and central bank to be considered, from the national standpoint. But also the prejudicial effects must be taken into account, which might be carried over from the EMS to a European central bank still to be established. On the other hand, the credit operations with their fiscal adjustment character, which in the final analysis were initiated by the executive on its own responsibility, have a de facto impact on traditional parliamentary budgetary rights. The criticism voiced with respect to a number of arrangements and agreements in the EMS leads to the conclusion that the responsible politicians should reappraise the rationality of the monetary system. Macroeconomically and politically it would be fatal for the European Community, if the EMS were interpreted predominantly as a financing system and the Community were to degenerate eventually into a financing community for emergencies.
Possible Monetary and Currency Policy Configurations of the European Monetary System
Liquidity effects of exchange market interventions are governed to a decisive extent by institutional circumstances in the various countries. They may, as in the case of the Federal Republic Germany, result in imbalances of foreign exchange movements being accompanied by parallel changes in the stock of current central bank money; they may, as in the USA, in the event of automatic compensation by opposed open-market transactions, be liquidity-neutral; and they may, as in Great Britain, result in the banks' supply of liquidity changing even when exchange movements are balanced, but other compensating deficits or supluses occur on the balance of services and capital movements. From this two conclusions may be drawn for the design of the European Monetary System. On the one hand, it should be ensured that symmetrical exchange market interventions are accompanied by symmetrical liquidity effects. Only in this case can the financing potential of the commercial banks in the Community countries remain unchanged in the event of exchange rate support. Secondly, symmetrical Intervention rules may be linked with asymmetrical liquidity effects, the outcome of which is that only in, exchange-receiving countries are liquidity effects offset by compensatory open-market transactions. Money market paper to be made available by the European Monetary Fund could be used to absorb liquidity influxes. This Arrangement could contribute towards hardening the currency system. The system of divergence limits is a new element in a fixed exchange rate system. It is intended to compel countries whose currencies diverge substantially from the Community mean to take precautionary action. However, the divergence limits can hardly take over the function of an early-warning indicator for future, strained exchange rate situations, and in the event of intramarginal interventions, currency risks arise as a result of redistribution of exchange reserves among the participating countries. Moreover, there is a tendency for a country to take on the function of a reference currency country, if no arrangements are made for the distribution of interventions. Supplemented by a yardstick which is oriented to forward rate constellations and serves as a pointer for expected exchange rate trends on the spot market and for preventative interventions, the divergence limits are an important element for the stabilization of the new currency system.
The ECU as a Yardstick and Reserve Asset in the EMS
Whereas the European UA in the former "snake" system served merely as a unit of account, the ECU of the EMS fulfils substantially more far-reaching functions as a reference point for the key exchange rates of the participating currencies and an indicator of exchange rate divergence, and also as a reserve asset ans means of payment for the EC central banks. The configuration of this system built up around the ECU at its centre was the subject of heated debate. Not only for technical reasons, but also on stabilization policy grounds, there was much to be said against the ECU intervention system initially favoured by some member countries, in which the value of the ECU itself was to be defended within a certain margin (so-called basket system). And even in the system of bilateral parities which was finally put into effect, in which, however, the key exchange rates are likewise fixed on the basis of the ECU, not all the problems of the basket system have been eliminated. Above all, the concept of divergence from the community mean as a yardstick for distributing the burdens of adjustment reappears - in the shape of the divergence indicator - in a weakened form. The judgment on this indicator function will depend, in the final analysis, on what consequences follow the lighting up of the indicator in the way of practical monetary policy measures. With regard to the ECU's reserve-asset function, the misgivings of some countries related principally to the creation of liquidity via extensive credit facilities. In general, it must be said that the success of this ECU-based monetary system must not be expected to come exclusively from the intervention and credit mechanism; a necessary prerequisite is rather improvement of economic convergence. On this basis, the ECU can - through initially probably only to a limited extent - also be applied for other purposes, especially in the private sector.
On the Status of the European Monetary System within the World Monetary System
The establishment of the European Monetary System is attributable -like GATT and the IMF in the past - primarily to political and not to economic motives. The EMS, the new brace that is expected to create better preconditions for economic growth and internal price stability, is intended to strengthen the political coherence of the member countries and make further integration progress possible. The aim of this is to enable Europe to play a role consonant with its economic importance even in a changed field of world political forces. The parity-grid of the EMS can be regarded as a subsystem of the international monetary system within the range of latitude for selecting exchange-rate systems provided by the revised IMP agreement. The founders of the EMS have expressly declared their acceptance of the commitments laid down in the IMF agreement with respect to exchange rate arrangements. For example, the EMS credit facilities are intended to contribute in case of need only towards bridging the period necessary to regain balance-of-payments equilibrium by applying economic policy measures. Also exchange rate changes- guiding maxim: fixed but adjustable - are definitely provided for in the event of disequilibria. Towards third countries, the EMS members pursue an exchange rate policy of co-ordinated floating in accordance with the IMP statutes. But also within the parity grid, the members orient themselves to the IMF principles of exchange rate policy. Thus the analysis shows that the EMS complies with the rules which also apply to the worldwide monetary system.
Upper and Lower Limits to Public Debt - Critical comment on Wolfgang Stützel's statements
Stützel's theses that increasing public borrowing does not lead to crowding out of private investors from the loans market and is a suitable means of reducing the indebtedness of firms is countered with the critical objection that these theses are not adequately substantiated by the theory. Stützel's argumentation is based primarily on definitional identity of cycles, which must, ex post, always be satisfied. He largely neglects the explicit formulation of behaviour hypotheses which would be necessary for the causal conclusions he sets forth. Insofar as implicit behaviour hypotheses can be concluded in Stützel's statements, they are either not very plausible (thesis 1) or may lead to opposite results (thesis 2). Stützel's third thesis that the current amount of interest-bearing public debt in the Federal Republic of Germany lies beneath a lower limit while other future commitments of the public house-holds, involving social transfers and subsidies, already lie above an upper limit has no substantiation in the theory and, in our view, can only be interpreted as the expression of a political opinion.
The basic feature of the European Monetary System
The European Monetary System (EMS) replaced the parity grid system known as the currency snake on March 13, 1979. The EMS is a regionally limited system of fixed but adjustable parities. The common denominator for parity fixing is the European Currency Unit (ecu). Like the special drawing rights of the IMF, the ecu is a basket of currencies. It contains certain fixed amounts of currencies of the EC countries. The ecu parities govern a system of key cross rates about which the market rates of the participating currencies may fluctuating only within narrow limits. The obligation of the participating central banks to intervene ensure that these limits are not exceeded. The EMS parity system is supplemented by a system of divergence limits. The divergence limits are certain values of a divergence indicator, which signals divergences among the currencies participating in the system. The daily value of the ecu serves as divergence indicator. If a currency moves beyond its divergence limit, it is presumed that the country concerned will initiate economic policy measures to remedy the situation. Should the country with the divergent currency take no action, consultations at Community level are held. The parity system and the system of divergence limits are supplemented by a balance settlement and credit system, which ensures very short-term financing of the interventions of the participating central banks of the exchange markets and governs the matter of settling the resulting balances. Balances can be partly settled by transfer of ecu credit balances, which were created by the deposit of currency reserves with the European Fund for Monetary Co-operation (ecu as means of payment and reserve asset of the EC central banks). Apart from the very short-term financing of intervention balances, facilities for longer credits (short and medium-term assistance) are available to defend the fixed-parity system. The effective credit amount available for this purpose is 25,000 mill. ecu (approx. DM 63,000 mill.).
The Bond Market since 1978 A chronicle with psychological aspects
The theses on psychologically determined entrepreneurial decisions in the free market economy, which W. A. Jöhr set up over 20 years ago, still have topical significance and are definitely suitable for characterizing also purchase and sales decisions on the domestic bond market. True, psychological causes such as, say, exaggerated emotions and moods, origination of notions, motive adoption and endeavours to steal a march on others, are not the only determinants of the bond market. In past years, however, they have gained considerable importance and for many interest-rate forecasts in which the fundamental data alone were in the foreground of the deliberations they were sometimes no insignificant source of errors. Precisely the trend on the domestic bond market since 1978 is a classical example of this. For example, there were unstable situations with self-sustaining upswings of yields, e.g. on the announcement of the European Monetary System and new figures on public borrowing needs, or on the announcement of the socalled Carter notes, to mention just a few phases. But such phases were often followed by downward trends. Inter alia, the cause of these exaggerations evidently lies also in conformable behaviour of the parties in the market, which is attributable to the fact that, prior to making decisions to buy or sell, they inquire or consider how the other market participants are behaving, so that in the event of wrong decisions they can later point out that other market participants were no more successful. For broad spheres of economic life, some groundwork has been done for scientific behaviour research. If the psycholigical factors governing the bond market can be eluciated better on a scientific basis, the short-term forecasts can also be improved.