Preparation for Stage 3: Issues in Design of Monetary Instruments for EMU Move Toward Resolution
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In preparation for stage 3 of European economic and monetary union (EMU), when all members of EMU will be subject to a single monetary policy, the European Monetary Institute has been working with national central banks of the European Union to identify the set of instruments to be used in the operation of monetary policy. Several decisions regarding arrangements have already been made, but a number of issues remain to be addressed. In a new study, Some Issues in the Design of Monetary Instruments for the Operation of European Economic and Monetary Union, Charles Enoch, Paul Hilbers, and Arto Kovanen identify what important decisions still have to be made as well as where further refinements could improve the effectiveness and transparency of such instruments.
The Governing Council of the European Central Bank, which will be established when the decision is made to proceed to stage 3-scheduled for May 1998- will make the final decisions about the choice of monetary instruments. The European Monetary Institute has no decision-making powers and can only advise. It has therefore been able to make specific recommendations only in areas where all the members of the European Union have reached consensus. Where views have differed, the institute's role has been to identify and clarify the issues and prepare a menu of options for the operations of the European Central Bank. Despite this constraint, the institute has been able to achieve a remarkable amount of common ground, and the proposed framework has been fleshed out considerably. A number of issues remain to be addressed, however, and work is continuing to ensure that the transition to stage 3 will be as smooth as possible.
The European Monetary Institute came into being on January 1, 1994, which marked the start of stage 2 of economic and monetary union. The two main tasks of the European Monetary Institute, located in Frankfurt am Main, are to:
- contribute to the fulfillment of the conditions necessary to reach the last stage of monetary union-in particular, the convergence of the main macroeconomic indicators; and
- make the preparations required for the establishment of the European System of Central Banks and the conduct of a single monetary policy and for the creation of a single currency.
In modern...
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