No. 65 - An increasing role for the ECU: a character in search of a script

by Rainer S. Masera
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This paper starts by reviewing the development of the ECU in the official field and in private markets (Sections 2 and 3). The various factors which help explain the growing use of the private ECU are then considered; in particular "efficient portfolio" analysis shows the desirable properties of the European currency unit. In section 5 the paper examines the two main ways under consideration to give the ECU a truly central role in the EMS, namely to develop it into (i) a fully-fledged international reserve asset and (ii) a European currency functioning in parallel with domestic currencies. It is argued (Section 6) that the two schemes should be viewed as complementary. In particular, ECUs in the official and in the private sectors should be made interchangeable to allow use of official ECUs for exchange market interventions; following an approach originally suggested by P. Kenen for the SDR, this could be achieved if central banks were able to exchange their official ECUs with commercial banks, which would simultaneously redeposit them with the BIS.

This international monetary institution, which would act as a clearing house for commercial banks, is already empowered to hold official ECU balances. The counterpart of an expanding use of the official ECU along these lines would be its increasing role as a substitute for domestic currency borrowing and lending, leading to its use as a parallel common currency. This process - it is argued in Section 7 - would have to be monitored in order to prevent problems of money and credit control.

This paper is an offshoot of ongoing work on the role and prospects of the ECU conducted by the Committee of Alternates of the EEC Central Banks, under mandate of the Governors.

Full text

  1. 30 June 1986
    No. 65 - An increasing role for the ECU: a character in search of a script
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