Role and place of the National Bank of Ukraine in Ukraineʼs accession to the EU and the Eurozone: Experience of central banks of EU countries

The international financial and economic crisis highlights that central banks should go beyond their traditional emphasis on low inflation to adopt an explicit goal of financial stability. Our paper addresses this highly topical issue of macro-prudential framework with the focus on effectiveness of monetary policy in affecting some financial stability indicators, in the experience of several Central and Eastern European countries during 2003M01–2012M06. Using a Structural Vector Autoregressive model and impulse response function, we analyze the impact of short-term interest rates upon industrial production, loan to deposit ratio for the banking system, stock prices and exchange rate (proxy variables for financial stability). We want to test if the interest rate is conducive to financial stability. Our empirical results show that the effectiveness of the short-term interest rate in affecting selected asset prices depends on monetary policy strategy. In the case of the Czech Republic, Hungary, Poland and Romania, the interest rate instrument used for inflation targeting is conducive to financial stability. Among countries with a fixed exchange rate regime, only in Bulgaria does transmission of the foreign interest rate impulse to domestic variables promote financial stability. Additionally, our results show that in Latvia and Lithuania adjustments to the monetary policy of the European Central Bank (ECB) are not in accordance with country-specific conditions. The paper contributes to a policy debate on the design of macro-prudential polices in the aftermath of the boom-bust cycle experienced by the Central and Eastern European countries in the second half of the last decade.

Central banks around the world have started exploring the possibility of issuing Central Bank Digital Currencies (CBDC). A CBDC would be similar to digital cash and could, in theory, substitute for commercial bank deposits as the money used by households and businesses. This paper explored the potential implications for financial stability and monetary policy stemming from potential CBDC adoption in Central and Eastern European countries (CEEs). We conducted an empirical analysis using publicly available data from the European Central Bank’s database to assess how introducing a CBDC could impact the business models of the largest CEE banks. Our findings indicated that a CBDC could support financial stability by accelerating the adoption of digital payments in CEEs, improving anti-money laundering, and thus supporting banks’ ability to finance the economy. We found that the impact of a CBDC on the profitability of commercial banks would be impacted more by any change in interest rates than by the quantity of CBDC replacing stable bank funding. Furthermore, a CBDC could be beneficial for monetary policy by improving the control over inflation and accelerating the implementation of countercyclical instruments when classical monetary policy instruments are no longer effective. Hence, non-Euro CEE countries would benefit the most from the introduction of a CBDC.
 Keywords: central bank digital currencies; financial stability; monetary policy; financial institutions

In this contribution, some legal issues are described that have played a role in the in the first ten years of the European System of Central Banks’ existence. While the institutional framework established in Maastricht for the introduction of the euro and the functioning of the European System of Central Banks has proven to be legally sound and forms an appropriate basis for a successful monetary policy in the euro area, several legal issues have arisen that have been controversially discussed. The following issues are explored: (1) the legal status of the European System of Central Banks/ European Central Bank in the Community/ potential future Union framework, (2) the competences of the decision-making bodies of the European Central Bank, (3) the allocation of tasks and competences to national central banks and the European Central Bank in the context of the so-called principle of decentralization, (4) the new voting regime of the Governing Council of the European Central Bank entailing a rotation of voting rights of the national central banks’ Governors and (5) the allocation of monetary income. The article concludes with the expectation that issues sur-rounding the allocation of tasks and competences within the System and forms of cooperation between central banks will become more and more important, further, that legal issues will need to be resolved concerning the involvement of the European System of Central Banks in the future framework for financial supervision in the European Union.

Although nowhere in the statute of the European System of Central Banks (ESCB) has the concept of the ESCB been defined, the setting up of the European Central Bank (ECB) nevertheless was inevitable. Whereas the ESCB represents a system, the ECB, which is meant to be the central bank for the European Union, will lead to the ESCB. What the position of the national central banks would be vis-a-vis the ECB remains unclear. There is the issue of whether the national central banks will remain accountable to both ESCB/ECB and the International Monetary Fund (IMF), and in the event of any conflict between the monetary policy of the ECB and that of the IMF, which one should prevail.

In this paper, the consequences on financial stability of the institutional design envisaged in the Maastricht Treaty – which implicitly assigns the objective of financial stability to the National Central Banks (NCBs) – are assessed. The Maastricht Treaty spells out precisely the role of the European Central Bank (ECB) and NCBs within the European System of Central Banks (ESCB) as to achieve the objective of price stability, but it is not equally clear as far as the objective of financial stability is concerned. In an area like EMU with a high degree of financial and economic integration, the actions undertaken by NCBs in the fields of regulation, prudential supervision and Lending of Last Resort are characterized by relevant externalities across jurisdictions. The present institutional design does not allow EMU to benefit from the internalization of these spillovers since NCBs do not face incentives to undertake properly banking policy activities. Applying the principle of subsidiarity to the problem of power sharing between ECB and NCBs, the following suggestions for a revision of the institutional design are obtained: i) ECB should be assigned the task of coordinating regulation activities to avoid regulatory arbitrage, while prudential supervision should be managed jointly in a two-tier system by ECB and NCBs; the decision process pertaining the use of discount window and the Lending of Last Resort function should be centralized; ii) the rules pertaining the working of TARGET and EMS 2 should be changed in order to limit the risk of a financial crises imported from pre-ins countries.

This paper discusses the development of the role of the European System of Central Banks (ESCB) in safeguarding financial stability. This is extremely important in the circumstances of globalised banking industry and financial market complexity and along the path to a new post-crisis world. The financial crisis forced European policy makers to reshape the institutional architecture of the European Union's (EU) framework of financial sector and market supervision as well as to define responsibilities in macro-prudential policy-making and coordination at the EU level. The European System of Financial Supervision (ESFS) started its activities in 2011. At the same time in 2012, the Council of the EU set out its position on establishing a single supervision mechanism (SSM), conferring supervisory tasks on the European Central Bank (ECB) and modifying the responsibilities of the European Banking Authority (EBA). The EU national central banks (NCBs) play an essential role in the process of safeguarding financial stability, and it will become more complex in the near future. The new institutional architecture is a challenge for NCBs. The analysis of NCBs experience in the ESFS and their involvement in safeguarding financial stability at the national level are a good opportunity for promoting the integrity of the financial system. Following the centralisation of a part of the decision-making process, the effectiveness of the NCBs was questioned. Specific developments in the financial system of each country determine the mode of operation and the place of the NCB in the financial environment. At the same time in the context of financial market globalisation and turbulence, the NCBs are subject to financial risks. The paper pursues the aim to propose solutions for further improvements in safeguarding financial stability as well as the ESCB's operation and policy. In the pursuit of the objectives set, the author has made use of such methods as the statistical analysis of indicators, and the graphic and monographic approach. The author builds her research on the analysis of functions of the ESFS, the ESCB and views of a number of researchers on various aspects of modern central banking and NCB role in the process of safeguarding financial stability. Some differences have been detected for the national system of safeguarding financial stability and the involvement of NCBs in the micro-prudential supervision. The institutional architecture for macro-prudential and micro-prudential supervision becomes more complex and centralised only for the group of EU countries. Therefore there is still room for improving the effectiveness and efficiency of this framework. The findings of the research suggest that there exist inconsistencies between the tasks of the ESFS and the SSM and that the integration process is gaining momentum. The innovative aspect of this paper lies in finding trends for the development of NCBs in the micro-prudential supervision and the SSM and the ESFS. DOI: http://dx.doi.org/10.5755/j01.eis.0.7.4129

It is crucial that the European System of Central Banks develops into a truly European organization with a European outlook. Regional or national monetary policy in EMU cannot and will not exist. All monetary policy decisions and actions will have to be based on Euro-area wide analyses and considerations. (Willem Duisenberg, President of ECB, 1999) Even before the launch of the euro, the relationship between the European Central Bank (ECB) and Europe’s politicians hit the headlines. There was the tussle over the appointment of the president, when France promoted the claims of its candidate, and, later, calls by Germany’s new Social Democrat government for lower interest rates. Less discussed, but possibly more important in practice, is the relationship between the new monetary authority and the existing national central banks (NCBs), which together as the European System of Central Banks (ESCB) devise and implement policy.

The aim of this paper is to present the price stability oriented monetary policy of the European Central Bank. The European Central Bank began activities in 1998 and the primary objective of the European System of Central Banks is to maintain price stability and the ESCB should also support the general economic policies in the Community. Monetary policy is a special tool that national governments and central banks uses to influence on its economy, especially to control the supply of money and to influence on the level of economic indicators. This paper investigates the assumed objective of the European System of Central Banks which is to maintain price stability. What is more, we would like to present the monetary policy strategy of the European Central Bank and analysis of the Harmonized Index of Consumer Prices.

Objective: The aim of this study is to examine monetary policy transmission mechanisms in four Central and Eastern European countries (the Czech Republic, Hungary, Poland and Romania), in the presence of fiscal and exchange rate effects. Research Design & Methods: We implement a structural vector autoregression (SVAR) approach for modelling the interdependencies between monetary and fiscal policies, output gap and consumer price inflation (CPI). In our six-variable model, which includes the budget balance, the output gap, CPI, the central bank reference rate, the lending rate and the real exchange rate (RER), short-run restrictions on the contemporaneous structural parameters imply that the budget balance responds to changes in the output gap and lending rate, while the central bank reference rate is a function of output and inflationary shocks. Findings: The results of our research show that the effects of an increase in the central bank’s short-run interest rate on inflation, output gap and the RER are quite heterogeneous across the CEE countries. As the monetary policy response to inflation seems to be significant and rather uniform across countries, though with a different time pattern, there is no evidence of its reaction to the output gap (except for Romania in the long run). Among other results, budget surplus has a strong anti-inflationary impact in all countries but at the expense of a short-lived output slowdown (except for Hungary). The RER undervaluation is likely to stimulate output (Romania) or depress it (Poland), with a neutral stance in the two other countries. As expected, an increase in the lending rate is followed by a fall in output on impact, while there is no significant effect on inflation. Implications/Recommendations: Our study argues in favour of a much stronger response of the central bank reference rate to the output gap in the CEE countries. As suggested by the experience of Poland, an immediate response of the central bank to inflation could explain the lack of the price puzzle when an increase in the reference rate is associated with a sustained increase in consumer prices. An anti-inflationary monetary policy stance should be strengthened by fiscal tightening, while in a recession a higher budget deficit is likely to boost output and prevent a deflationary spiral. Contribution: The article presents the application of the extended IS-MP-IA model to the modelling of monetary policies by the central banks of the CEE countries that practice a floating exchange rate regime.

According to Article 127(1) TFEU, it is the core purpose of the European System of Central Banks (ESCB) (with the European Central Bank (ECB) at the top) to maintain price-stability within the European Monetary Union (EMU). It is this task that is usually referred to, where the ‘monetary mandate’ or the ‘monetary policy’ of the ECB is mentioned. However, though this monetary mandate is not only the most prominent but most certainly also the most disputed task of the ESCB–especially since the financial and euro crisis–it is by no means the only task transferred onto the ESCB (respectively the ECB) by the Member States. According to Article 127(2) TFEU, the basic tasks to be carried out by the ESCB in actual fact include the conduct of foreign-exchange operations and thus the ‘foreign policy’ relations of the euro area and the euro with other currency areas (mainly states) and currencies. When creating the EMU, however, it was highly disputed whether the ECB or the Council should be the competent authority to conduct or rather to decide on such operations.

The present study is structured in two Chapters – the first containing three Sections and the second two – as follows: (a) Chapter One focuses on the European Central Bank (ECB) within the European System of Central Banks (ESCB): • the first two Sections (A and B) briefly discuss the definition and the sources of the law of the Economic and Monetary Union (EMU), as well as the structure and operation of the ESCB, and • Section C presents then the general and the temporary (unconventional) framework governing the ECB’s single monetary policy within the Eurosystem (a sub-system of the ESCB, under 1-3). It also discusses the role of the ECB in the provision of emergency liquidity assistance (ELA) to solvent credit institutions in the euro area on the basis of the recent (2017) related ECB Agreement (under 4). (b) In Chapter Two the focus turns to the ECB within the European System of Financial Supervision (ESFS): • Section D discusses recent and ongoing developments in European banking law, identifying in particular the specific tasks conferred upon the ECB firstly with regard to the macro-prudential oversight of the EU financial system (under 1.2) and then for the micro-prudential supervision of credit institutions established (mainly but not confined to) in the euro area within the Single Supervisory Mechanism (SSM) (under 3.1), while • the SSM is presented in more details in Section E.

Although centred on the European Central Bank, the international representation of the European System of Central Banks also relies on the national central banks. This article analyses the requirement of unity of the international representation of the ESCB, assesses the current means through which it is implemented, and identifies areas of possible improvement in the coordination of the respective international activities of the European Central Bank and of national central banks. The article argues that the principle of sincere cooperation can play a significant role, both within and beyond Article 6 of the ESCB/ECB Statute. Although the existing soft-law arrangements within the ESCB are more effective than for the EMU in general, improvements are possible regarding the conclusion and implementation of international cooperation agreements. Stronger synergies with the activities of national central banks would also help the emergence of a more proactive and influential international cooperation strategy. European System of Central Banks, Eurosystem, national central banks, international representation

Interest rate risk management at central banks is subordinated to the achievement of macroeconomic monetary policy objectives. However, interest rate risk can materialise and result first in a deterioration of profitability and then in a loss of credibility for the central bank. The primary objective of this research article is to evaluate the diversification of interest raterisk levels among central banks in selected Central and Eastern European (CEE) countries and the repercussions of these risk levels on the financial performance and credibility of these institutions.The analysis covers financial data from 2018 to 2023, a period of significant socio-economic upheavals, including the COVID-19 pandemic and the war in Ukraine. The influence of unconventional monetary policy instruments on market risk levels is also examined. Panel data analysis using linear regression dynamic models confirms that the scale of interest raterisk significantly affects central bank profitability in selected CEE countries. Moreover, profitability levels have a significant impact on institutional credibility.

This paper outlines the organization structure of the European System of Central Banks, comprised of the European Central Bank and the central banks of European Monetary Union member countries. Also outlined are the policy procedures used by the European Central Bank as it implements a common monetary policy for all member countries. These procedures are viewed in comparison to those used by the Federal Reserve System in the U.S.

With the beginning of Stage Three of Monetary Union, Europe will be faced with an unprecedented systemic change in monetary policy. Monetary policy will be carried out by the European System of Central Banks (ESCB), which will be composed of the European Central Bank (ECB) and the national central banks (NCBs) of the Member States. The responsibility for monetary stability will shift from national authorities to a Community institution. What are the consequences of this major systemic shift in the field of monetary policy for the area of prudential supervision? This presentation will deal with this question in the first place from an institutional angle. The discussion is focused on the interrelationship between the authorities responsible for the exercise of prudential supervision and the ESCB.