–Decentralized Money Creation Is Not A Way Forward
FRANKFURT (MNI) – The scope of any bond market interventions under
the European Central Bank’s new OMT program will be limited to the
extent they are need to ensure price stability, ECB Governing Council
member Yves Mersch said Tuesday in a speech text prepared for delivery
in Berlin.
Mersch reminded that the ECB’s primary mandate is to ensure price
stability and that this mandate must not be violated. “Correspondingly,
OMTs will be only used if – and to the extent – necessary to ensure
price stability,” he stressed.
Mersch, who heads the Central Bank of Luxembourg and is widely
expected to join the ECB’s Executive Board later this year, also noted
that “the OMT is a part of our non-standard monetary policy crisis
measures and is thus limited in time.”
The ECB had described its previous bond by program SMP as “limited
in time and scope” but has thus far avoided to cite any limits for the
OMT. This applies both to the timeframe and possible targets such as
ensuring price stability.
Mersch defended the ECB’s new bond buy plan to his German audience
noting that it had been necessary to avert deflationary threats.
Addressing one of Germans’ most pronounced fears, Mersch agreed that the
OMT must not turn into monetary financing via the backdoor and noted
that right policies were in place to prevent this.
“Secondary bond market interventions must not serve to circumvent
the taboo of primary market [purchases],” he said. This is ensured by
clear monetary policy targets, autonomous decisions by the central bank
and conditionality of fiscal discipline, Mersch said.
Mersch appeared to be more critical of the ECB’s decisions for more
decentralized collateral rules at a time when the debate over further
broadening of collateral requirements is ongoing.
“Late last year, the ECB Governing Council had decided to
temporarily accept credit claims as collateral that were only rated as
eligible on a national level,” Mersch recalled.
“While the risks of these operations are not shared by the
Eurosystem but are carried by the individual central bank, a such
decentralized form of money creation is not a viable way forward,”
Mersch cautioned. “These measures must be monitored closely even if
they are subject to strict criteria, controls and volume limitation,” he
asserted.
— Frankfurt bureau: +49 69 720 142; email: jtreeck@mni-news.com —
[TOPICS: M$X$$$,M$$EC$,MT$$$$,M$G$$$,MGX$$$]
