Central banking in a monetary union: reflections on the proposed statute of the European Central Bank

Abstract

European countries are currently ratifying amendments to the Treaty of Rome to allow the creation of a single European currency and a European Central Bank. If the amendments come into effect, Europe (or a subset) will have a new, single currency by 1999 at the latest. This paper discusses the statutes of the central bank from the perspective of the theory of central banking. First it describes the institutional framework. Then it discusses separately the issues relating to monetary policy and banking policy. The paper concludes that the ECB is unlikely to maintain low inflation. Also, the presence of a variety of financial systems and institutions in the EC member countries is not compatible with the establishment of a single currency managed by a single central bank.