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Mr. Duisenberg's statement to the European Parliament's Subcommittee on Monetary Affairs Address by the President of the European Central Dr. W. F. Duisenberg, in Brussels on 22/9/98.
This is the first time that I, in my capacity as President of the Europea Bank (ECB), have the privilege to appear here at the European Parliament in accordanc Article 109b(3) of the Treaty. Today I should like to inform you, first, of the decisi been taken by the ECB since July and, second, of our schedule for the work still to be during the remainder of 1998. Afterwards I shall be happy to answer your questions.
First and foremost I should like to stress that our preparatory work for Sta of Economic and Monetary Union (EMU) is proceeding on schedule. You may be aware that w held two sets of meetings this month: meetings of the Governing Council of the ECB and General Council of the ECB on 1 September 1998, and an additional meeting of the Gover Council on 11 September 1998. We decided to hold a second meeting in September because felt that with regard to the long lead-time, especially in those areas in which the pre of our counterparties, i.e. the credit institutions, is affected by our decisions, w things forward faster. Today I am in a position to present to you quite a long list decisions taken recently by ECB bodies. I think that the list demonstrates that we have good progress in a number of areas. Let me please elaborate on the most important de relating to the preparatory work for Stage Three of EMU.
## A. State of preparatory work
## 1. Exchange rate policy co-operation between the euro area countries and other EU M States
The General Council endorsed the text of an Agreement between the ECB and t non-euro area national central banks, laying down the operating procedures for an excha mechanism in Stage Three (the so-called ERM II). You will recall that the European Cou Amsterdam in June last year agreed to set up an exchange rate mechanism in Stage Th replace the present European Monetary System (EMS). For this reason, the EMI prepared a Central Bank Agreement on the replacement of the current exchange rate mechanism with a one in Stage Three. It is this Agreement which has now been signed by myself, as Pres the ECB, and by the governors of the four non-euro area national central banks. The s this Agreement by the latter parties implies their acceptance of the operating procedu not, however, imply their participation in ERM II.
For the currency of each Member State participating in the mechanism, a ce rate against the euro and a standard fluctuation band of ±15% will be defined, in supported by automatic unlimited intervention at the margins, with very short-term f available. However, the ECB and the participating non-euro area national central bank suspend automatic intervention if this were to conflict with their primary obj maintaining price stability. In line with the Resolution of the European Council, exc policy co-operation may be further strengthened, for example by allowing closer exchan links between the euro and other currencies in the exchange rate mechanism, where, an extent that, this is appropriate in the light of progress towards convergence.
## 2. General documentation on ESCB monetary policy: instruments and procedures
Last Friday, 18 September 1998, the ECB published a report entitled 'The s monetary policy in Stage Three: General documentation on ESCB monetary policy instrume and procedures'. This report contains a detailed description of the monetary policy in and procedures to be applied by the ESCB in Stage Three of EMU. Hence it provides c institutions with the information they need in order to prepare for participation monetary policy operations as from 1 January 1999. The report expands upon and update material contained in an earlier version which was published by the EMI on 23 September
The report first sets out the criteria to be fulfilled by credit institutio be eligible as counterparties to ESCB monetary policy operations. It then presents the the different types of open market operations which might be conducted by the ESCB an ESCB's two standing facilities (the marginal lending facility and the deposit facility) also contains a detailed description of the procedures related to the various types of and specifies the eligibility criteria and the risk control measures to be appli underlying the ESCB's liquidity-providing operations. Moreover, the report includ description of the features of the ESCB's minimum reserve system and sets out sp provisions to be applied for the ESCB's monetary policy instruments and procedures transition to Stage Three.
In this context I should also mention that on 11 September 1998 the Gover Council of the ECB endorsed the statistical framework on the basis of a number of rep had been prepared by the EMI - many of which had been published in the past - th confirming the ECB's statistical requirements for Stage Three. The reporting framework money and banking statistics of the ECB is included in the 'General documentation'.
Furthermore, on 11 September 1998 the Governing Council endorsed a list eligible securities settlement systems following an assessment of such systems against that had previously been laid down for their use in the credit operations of the ESCB which indicates those securities settlement systems that will be used by the ESCB conditions for their use, is set out in the 'General documentation' as well.
## 3. Technical preparations for the euro banknotes
The technical preparations for the euro banknotes are proceeding accordi schedule. The origination, i.e. the process of converting the designs into banknotes, ha successfully completed. A zero-production run will be conducted in the autumn before production starts in early 1999.
The Governing Council of the ECB decided on 11 September 1998 that there wi be no national feature on the euro banknotes. It also confirmed, in line with recommendations made by the EMI, that the following seven banknote denominations will issued: 5, 10, 20, 50, 100, 200 and 500.
## 4. Schedules for the meetings of the Governing Council and General Council
In addition to its meetings scheduled for 13 October, 3 November and 1 Decem 1998, the Governing Council of the ECB has agreed to hold a further meeting on 22 Dec 1998. The Governing Council's final meeting before the start of Stage Three will be
primarily to fine-tuning its last-minute preparations. The Governing Council has als that during the first year of Stage Three its meetings shall, as a rule, be scheduled to Thursdays every other week, starting on 7 January 1999. Furthermore, the General Counc agreed that the current practice of holding quarterly meetings on the same day as meeti Governing Council should continue in Stage Three.
As far as the information policy of the ECB is concerned, I should like to that the ECB intends to hold a press conference, as a general rule, once a month. Fo three months of 1999, it envisages holding a press conference immediately after the fir of each month. It is my aim to pursue a policy of actively informing the public about decisions and the rationale behind them. In addition to press conferences, the public of the members of the Governing Council and the ECB's regular publications will also co to achieving this goal. In its regular publications, for example, the ECB will report t all aspects relevant to the conduct of the single monetary policy in the euro area. I they will supply a detailed analysis of the developments upon which the respective m policy decisions are based. Apart from the publications foreseen in the Treaty, of Annual Report and the Quarterly Report are the most important ones, the ECB intends to a Monthly Bulletin.
In order to give a well-rounded picture I should like to draw your attentio of the most recent ECB publications, the 'Report on electronic money', before I tur schedule for the remainder of 1998.
## * The 'Report on electronic money'
On 31 August 1998 the ECB published a 'Report on electronic money'. The report deepens the analysis of the implications of prepaid cards conducted by the EMI and extends it to new forms of electronic money, i.e. software-based electronic money which have since started to evolve. The main findings of the study were published in th of the EMI Council on the issuance of electronic money, which is contained in Chapter III of the EMI's Annual Report 1997.
Although electronic money is not a widespread phenomenon at present, it is to have significant implications for monetary policy in the future. In this regard, ensured that, in particular, price stability and the unit-of-account function of money risk. There are a number of additional regulatory concerns regarding electronic money wh have to be taken into account, such as the efficient functioning of payment syst confidence in payment instruments, the protection of customers and merchants, the sta financial markets and protection against criminal abuse.
With a view to ensuring monetary policy effectiveness and a level playingand in order to address the regulatory concerns I have just outlined, the ECB rega essential that certain minimum requirements be fulfilled (see Chapter 4 of the Report).
I would like to stress in this context that the ECB follows with interest attention the European Commission's work on a directive on electronic money and expects officially consulted in due time.
## B. Schedule for the remainder of 1998
Given the huge volume of work to be completed during the remainder of the it seemed to us appropriate to give priority to those issues relevant to credit preparatory work for Stage Three. The above-mentioned 'General documentation' is example of this, since credit institutions' preparations for participation in ESCB mone operations as from 1 January 1999 were to a large extent dependent on the decisions to by the Governing Council. Given the lead time in this field I consider the approach ado very helpful.
The need to set priorities was also a major factor in opting to sched decision on euro area's monetary strategy for the autumn of this year. The determina strategy for the single monetary policy is a very important decision to be taken. Nonet outcome of our proceedings does not have such a direct impact on our counterpa preparations for Stage Three as the operational framework. Moreover, another reason for having taken definite decisions regarding the monetary policy strategy is that the matt very thorough consideration. The Governing Council has already started with this dis which will continue for some time. I can assure you that there are no fundamentally opinions within the Governing Council concerning the orientation of our future monetar strategy. In this context, allow me to remind you that the EMI had already achieved consensus regarding the monetary policy strategy. In particular, certain strategie exchange rate targeting or nominal income targeting were explicitly excluded some ti Moreover, it was pointed out that the implementation of the two potential candidate that had been identified, namely monetary targeting and direct inflation targeting practice, be relatively similar. A combination of elements of both strategies was also as a possibility. Finally, there was no doubt within the EMI Council, that monetar decisions should be based on a broad range of indicator variables and that money wo assigned a prominent role, with either targets or monitoring ranges set for its growt that money demand is sufficiently stable. The Governing Council of the ECB will conti discuss the specification of the strategy along these lines over the months to c Governing Council will then specify the exact formulation of its strategy and its impl in 1999 before the start of Stage Three.