Transcript european central bank

EUROPEAN CENTRAL BANK
and
EUROSYSTEM
Lecture 12
Monetary policy
European Central Bank
• Since 1 January 1999 the European Central Bank (ECB) has been
responsible for conducting monetary policy for the euro area
European System of Central Banks
• The ESCB comprises the ECB and the national central banks (NCBs) of all
EU Member States whether they have adopted the euro or not.
Eurosystem
• The Eurosystem comprises the ECB and the NCBs of those countries that
have adopted the euro.
The Eurosystem and the ESCB will co-exist as long as there are EU
Member States outside the euro area.
Euro area
• The euro area consists of the EU countries that have adopted the euro.
Euro area NCBs’
contributions to the
ECB’s capital
The net profits
and losses of
the ECB are
allocated
among the euro
area NCBs in
accordance with
Article 33 of the
Statute of the
European
System of
Central Banks
and of the
European
Central Bank
Non-euro area NCBs’
contributions to the
ECB’s capital
EURO AREA 2017
19 Member States of the European Union use the euro as their currency
•
Belgium
•
Germany
•
Estonia
•
Ireland
•
Greece
•
Spain
•
France
•
Italy
•
Cyprus
•
Luxembourg
•
Malta
•
The Netherlands
•
Austria
•
Portugal
•
Slovenia
•
Slovakia
•
Finland
•
Latvia
•
Lithuania
- 2017
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"The primary objective of the European System of Central Banks […] shall be to
maintain price stability".
It continues as follows: "Without prejudice to the objective of price stability, the ESCB
shall support the general economic policies in the Union with a view to contributing to
the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on
European Union.
“The Eurosystem is the monetary
authority of the euro area.”
The ECB is the central bank for Europe's
single currency, the euro. The ECB’s main
task is to maintain the euro's purchasing
power and thus price stability in the euro
area.
Further tasks of the Eurosystem:
Banknotes: the ECB has the exclusive right to authorise the issuance of banknotes within the euro area.
Statistics: in cooperation with the NCBs, the ECB collects statistical information necessary in order to fulfil the
tasks of the ESCB, either from national authorities or directly from economic agents.
Financial stability and supervision: the Eurosystem contributes to the smooth conduct of policies by the
competent authorities as regards the prudential supervision of credit institutions and the stability of the financial
system.
International and European cooperatin: the ECB maintains working relations with relevant institutions, bodies
and fora, both within the EU and at the global level, in respect of the tasks entrusted to the Eurosystem.
The Governing Council is
the main decision-making
body of the ECB.
It consists of
• the six members of the
Executive Board,
• plus the governors of the
national central banks of the
19 euro area countries.
The Executive Board consists of
the President,
the Vice-President and
four other members
THE GENERAL COUNCIL comprises
• the President of the ECB;
• the Vice-President of the ECB;
• the governors of the national central banks (NCBs) of the 28
EU Member States.
In other words, the General Council includes representatives of the
19 euro area countries and the 9 non-euro area countries
Tasks of the national central banks
The operational set-up of the Eurosystem takes
account of the principle of decentralisation.
The national central banks (NCBs) perform
almost all operational tasks of the
Eurosystem. In doing so, they enact the
decisions made centrally by the Governing
Council of the ECB.
The NCBs are responsible for
• Execution of monetary policy operations: this means that
the NCBs carry out the actual transactions, such as
providing the commercial banks with central bank money.
• Operational management of the ECB's foreign reserves
• Management of their own foreign reserves
• Operation and supervision of payment systems
• Collection of statistics and providing assistance to the
ECB
• Functions outside the European System of Central Banks
•…
Objective of monetary policy
To maintain price stability is the primary objective of the
Eurosystem and of the single monetary policy for which it is
responsible. The ECB aims at inflation rates of below, but
close to, 2% over the medium term.
"Without prejudice to the objective of price stability", the Eurosystem will
also "support the general economic policies in the Community with a
view to contributing to the achievement of the objectives of the
Community". These include a "high level of employment" and
"sustainable and non-inflationary growth".
• The benefits of price stability are substantial. Maintaining stable prices
on a sustained basis is a crucial pre-condition for increasing economic
welfare and the growth potential of an economy.
• The natural role of monetary policy in the economy is to maintain price
stability. Monetary policy can affect real activity only in the shorter term. But
ultimately it can only influence the price level in the economy.
Harmonised Index of Consumer Prices (HICP).
https://www.ecb.euro
pa.eu/stats/prices/hic
p/html/inflation.en.ht
ml
MONOPOLY SUPPLIER OF MONETARY BASE
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The Eurosystem is the sole issuer of banknotes and bank reserves in the euro
area.
This makes it the monopoly supplier of the monetary base, which consists
of
– currency (banknotes and coins) in circulation,
– the reserves held by counterparties with the Eurosystem, and
– recourse by credit institutions to the Eurosystem’s deposit facility.
•
These items are liabilities in the Eurosystem’s balance sheet.
•
Reserves can be broken down further into required and excess reserves.
•
In the Eurosystem’s minimum reserve system, counterparties are obliged to
hold reserves with the national central banks (NCBs). Beyond that, credit
institutions usually hold only a small amount of voluntary excess reserves
with the Eurosystem.
•
By virtue of its monopoly, a central bank is able to manage the liquidity
situation in the money market and influence money market interest rates.
•
In order to achieve its primary objective, the Eurosystem uses a set of
monetary policy instruments and procedures. This set forms the
operational framework to implement the single monetary policy
THE EUROSYSTEM'S INSTRUMENTS
The operational framework of the Eurosystem consists of the following set
of instruments:
•
open market operations,
•
standing facilities,
•
minimum reserve requirements for credit institutions (ratio 1%)
Only institutions subject to minimum reserves may have access
to the standing facilities and participate in open market operations
based on standard tenders. For outright transactions, no restrictions
are placed a priori on the range of counterparties.
In addition, since 2009 the ECB has implemented
several non-standard monetary policy measures,
i.e. asset purchase programmes, to complement the
regular operations of the Eurosystem.
Eurosystem - total assets
Millions of Euro
30.9.2016.
Securities held for
monetary policy
purposes = 1,434,785
Longer-term refinancing
operations = 513,797
Izvor: HNB
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OPEN MARKET OPERATIONS
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•
Open market operations play an important role in managing interest rates and a
liquidity situation in the market as well as signalling the character of monetary
policy
Open market operations can differ in terms of aim, regularity and procedure.
•
TYPES OF OPEN MARKET OPERATIONS
1. Main refinancing operations are regular liquidity-providing reverse transactions
with a frequency and maturity of one week - - reverse REPOs (repurchase
agreements) conducted in the form of collateralised loans).
2. Longer-term refinancing operations are liquidity-providing reverse transactions
that are regularly conducted with a monthly frequency and a maturity of three
months (but sometimes longer).
3. Fine-tuning operations can be executed on an ad hoc basis to manage the liquidity
situation in the market and to steer interest rates.
4. Structural operations will be executed whenever the ECB wishes to adjust the
structural position of the Eurosystem vis-à-vis the financial sector (on a regular or
non-regular basis).
The interest rate on the main
refinancing operations (MRO)
STANDING FACILITIES
•
Standing facilities aim to provide and absorb overnight liquidity, signal the general
monetary policy stance and bound overnight market interest rates.
1. Marginal lending facility
• Counterparties can use the marginal lending facility to obtain overnight liquidity from
the NCBs against eligible assets. The interest rate on the marginal lending facility
normally provides a ceiling for the overnight market interest rate.
2. Deposit facility
• Counterparties can use the deposit facility to make overnight deposits with the NCBs.
The interest rate on the deposit facility normally provides a floor for the overnight
market interest rate.
Izvor: ECB
Eonia and Euribor
• EONIA (Euro OverNight Index Average) is an effective overnight
rate computed as a weighted average of all overnight unsecured
lending transactions in the interbank market within the euro area.
• It is one of the two benchmarks for the money and capital markets in
the euro zone (the other one being Euribor).
• The Euro Interbank Offered Rate (or EURIBOR) is a daily
reference rate based on the averaged interest rates at which banks offer
to lend unsecured funds to other banks in the euro wholesale money
market (at different maturities)
• Euribors are used as a reference rate for euro-denominated forward
rate agreements, short term interest rate futures contracts and interest
rate swaps, in very much the same way as LIBORs are commonly used
for Sterling and US dollar-denominated instruments.
TRANSMISSION MECHANISM OF MONETARY POLICY
This is the process through which monetary policy decisions affect the economy in
general and the price level in particular. The transmission mechanism is
characterised by long, variable and uncertain time lags. Thus it is difficult to predict
the precise effect of monetary policy actions on the economy and price level.
European Commission
http://ec.europa.eu/finance/generalpolicy/banking-union/index_en.htm
European Central Bank
THE SINGLE SUPERVISORY MECHANISAM
19 countries
For those EU countries
that are not participating
in the SSM, the ECB and
the relevant national
supervisors will set out
in a memorandum of
understanding how they
will cooperate on
supervisory matters.
JST - Joint Supervisory Teams
WHY BANKING UNION
Weakness of the European currency union
– faster financial than real integration ?!; EMU is not (yet) fiscal or political union ?!
Financial integration:
financial markets in neighboring,
regional and/or global economies are closely linked together,
whether through market-driven or institutionalized processes.
There are several stages in the process of
economic integration
Integration requires the elimination of barriers to cross-border
investments and differential treatment of foreign investors,
but can also extend to harmonizing legislation, policies and
institutions, which over time can lead to national financial
markets effectively functioning as one.
Various forms of actual financial integration include:
• cross-border capital flows
• firms borrow and raise funds directly in the international
capital markets;
• foreign participation in the domestic financial markets;
• investors directly invest in the international capital markets;
• information sharing among financial institutions;
• sharing of best practices among financial institutions; ….
Banking union in the European Union: the transfer of
responsibility for banking policy from the national to the EU level;
initiated in 2012 as a response to the Eurozone crisis. As of 2014, the
banking union mainly consists of two main initiatives, the Single
Supervisory Mechanism and Single Resolution Mechanism, which
are based upon the EU's "single rulebook" or common financial
regulatory framework
2012.
Sovereign bonds are bonds issued by governments. They can
be either local-currency-denominated or denominated in a
foreign currency. However, the term sometimes meant a
government debt securities denominated in a foreign currency.
Sovereign debt generally refer the total outstanding stock of a
country's government debt.
The recent Greek crisis is one of too much sovereign
debt. With so much debt, under reasonable assumptions, this
calls into question the government's ability and willingness to
repay the loans. The market's response has been to sell Greek
sovereign bonds, driving up their yield, hence Greek borrowing
costs, and driving their prices lower – prinos i cijena obveznica
kreću se obrnuto proporcionalno
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General government
gross debt (percentage
of GDP)
Q1 2014
Belgium
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Austria
Portugal
Slovenia
Slovakia
Finland
Source: EUROSTAT
105.1
77.3
10.0
123.3
174.1
96.8
96.6
135.6
112.2
38.2
40.3
22.80
75.3
68.6
75.1
132.9
78.7
58.4
58.6
Bank nonperforming loans
to total gross loans (%)Q4
2013
3.8
2.9
1.5
24.6
31.3
8.2
4.3
15.1
30.3
6.4
12.5
0.2
9.2
3.2
2.9
11.0
18.0
5.1
0.5
Net
international
investment
position in % of
GDP
Q1 2013
48.2
42.9
-47.1
…
-121.1
-92.6
-15.6
-30.7
-156.8
-65.1
-46.9
216.4
49.2
31.1
-0.2
-116.2
-38.2
…
8.2
Net international investment positions