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Posted on 06-12-2019

Main factors for the subdued profitability of significant banks in the Banking Union

05-12-2019

This paper examines how the ECB should respond to the currently low profitability of significant banks in the Banking Union. The subdued profitability appears to be a structural problem caused by overbanking, with too many bank assets chasing too few profitable banking sector opportunities. To address the root problem of overbanking, the ECB should use its existing supervisory powers to require significant banks with unsustainably low profitability to restructure reducing their overall size. This ...

This paper examines how the ECB should respond to the currently low profitability of significant banks in the Banking Union. The subdued profitability appears to be a structural problem caused by overbanking, with too many bank assets chasing too few profitable banking sector opportunities. To address the root problem of overbanking, the ECB should use its existing supervisory powers to require significant banks with unsustainably low profitability to restructure reducing their overall size. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.

External author

Ata Can Bertay, Harry Huizinga

Public or Private? The Future of Money

15-11-2019

Stablecoins issued by large tech companies pose a significant challenge for traditional fiat money. In this study, we highlight the importance of a public-private-cooperation in dealing with this topic, where central banks closely work with stablecoin issuers in issuing synthetic central bank digital currency (sCBDC). This framework minimizes the risks of private money and utilises the technological advantages of stablecoin issuers. This document was provided by Policy Department A at the request ...

Stablecoins issued by large tech companies pose a significant challenge for traditional fiat money. In this study, we highlight the importance of a public-private-cooperation in dealing with this topic, where central banks closely work with stablecoin issuers in issuing synthetic central bank digital currency (sCBDC). This framework minimizes the risks of private money and utilises the technological advantages of stablecoin issuers. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.

External author

Alexander KRIWOLUZKY, Chi Hyun KIM

The Next Generation of Digital Currencies: In Search of Stability

15-11-2019

Recent innovations have re-opened the debate on the forms that money will take in the future. This paper discusses two aspects of the debate on the future of money: the implications of the rise of global private stablecoins, and the role that public central bank digital currencies (CBDCs) could play in the future. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs (ECON) Committee.

Recent innovations have re-opened the debate on the forms that money will take in the future. This paper discusses two aspects of the debate on the future of money: the implications of the rise of global private stablecoins, and the role that public central bank digital currencies (CBDCs) could play in the future. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs (ECON) Committee.

External author

Grégory CLAEYS, Maria DEMERTZIS

Virtual Money: How Much do Cryptocurrencies Alter the Fundamental Functions of Money?

15-11-2019

Advanced economies are moving towards a cashless system, with a recent surge in cryptocurrencies, issued by private entities. Although digital currencies may increase welfare, due to a reduction in transaction costs, they introduce risks to monetary and financial stability. Furthermore, they barely serve as money due to their large volatility. To partly overcome these problems, the issuance of a stablecoin would be an intermediate solution between private and central bank issued digital currency. ...

Advanced economies are moving towards a cashless system, with a recent surge in cryptocurrencies, issued by private entities. Although digital currencies may increase welfare, due to a reduction in transaction costs, they introduce risks to monetary and financial stability. Furthermore, they barely serve as money due to their large volatility. To partly overcome these problems, the issuance of a stablecoin would be an intermediate solution between private and central bank issued digital currency. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs (ECON) Committee.

External author

Eddie GERBA and Margarita RUBIO

The Impact of Digitalisation on the Monetary System

15-11-2019

Against the backdrop of a trend towards a cashless society and the emergence of private electronic monies, the paper discusses properties of digital currencies and implications for currency competition, describes benefits and risks of digitalisation of money for the society, explains the concept and implications of a CBDC, and discusses implications of digital money for monetary policy. The upshot is that the trend towards digitalisation will probably continue, but has to be closely monitored and ...

Against the backdrop of a trend towards a cashless society and the emergence of private electronic monies, the paper discusses properties of digital currencies and implications for currency competition, describes benefits and risks of digitalisation of money for the society, explains the concept and implications of a CBDC, and discusses implications of digital money for monetary policy. The upshot is that the trend towards digitalisation will probably continue, but has to be closely monitored and accompanied with an appropriate regulatory framework. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs (ECON) Committee.

External author

Salomon FIEDLER, Klaus-Jürgen GERN, Ulrich STOLZENBURG

Posted on 05-12-2019

The Urgent Need for a Review of the ECB's Monetary Policy Strategy: Towards an Institutional Review

15-11-2019

It has been sixteen years since the European Central Bank has undertaken a review of its monetary policy. In the intervening time, the world – and the economic challenges facing the ECB – have changed immensely. This paper argues that a review is overdue but that it should not be limited to policies; instead, an institutional review is needed. This would consist of a backward-looking assessment of outcomes versus mandates, coupled with a forward-looking scenario planning exercise. This document was ...

It has been sixteen years since the European Central Bank has undertaken a review of its monetary policy. In the intervening time, the world – and the economic challenges facing the ECB – have changed immensely. This paper argues that a review is overdue but that it should not be limited to policies; instead, an institutional review is needed. This would consist of a backward-looking assessment of outcomes versus mandates, coupled with a forward-looking scenario planning exercise. This document was provided by Policy Department A for the European Parliament's Committee on Economic and Monetary Affairs.

External author

Christopher A. HARTWELL

Priorities for Review of the ECB’s Monetary Policy Strategy

15-11-2019

Lower neutral rates of interest have eroded the policy space necessary to fight recessions. Against this backdrop, several central banks are re-assessing how their strategy and tools can be refined to best achieve their goals. The ECB should be no exception. Its strategy review should focus on redefining the inflation objective and on developing contingency plans for using its statutory authority creatively to achieve its mandate. This document was provided by Policy Department A for the European ...

Lower neutral rates of interest have eroded the policy space necessary to fight recessions. Against this backdrop, several central banks are re-assessing how their strategy and tools can be refined to best achieve their goals. The ECB should be no exception. Its strategy review should focus on redefining the inflation objective and on developing contingency plans for using its statutory authority creatively to achieve its mandate. This document was provided by Policy Department A for the European Parliament's Committee on Economic and Monetary Affairs.

External author

Jérémie COHEN-SETTON, Christopher G. COLLINS, Joseph E. GAGNON

Recommendations for the ECB’s Monetary Policy Strategy Review

15-11-2019

A review into monetary policy strategy, tools, and communications is underway at the Federal Reserve. The ECB’s new President has signalled support for a review of this sort for the Eurosystem. This paper considers five areas where a review of ECB monetary policy strategy could focus and makes recommendations in relation to each area. The five areas are price stability, the monetary pillar, liquidity provision, balance sheet risk and communications. Most importantly, it is recommended that the ECB ...

A review into monetary policy strategy, tools, and communications is underway at the Federal Reserve. The ECB’s new President has signalled support for a review of this sort for the Eurosystem. This paper considers five areas where a review of ECB monetary policy strategy could focus and makes recommendations in relation to each area. The five areas are price stability, the monetary pillar, liquidity provision, balance sheet risk and communications. Most importantly, it is recommended that the ECB adopt a 2 percent average inflation rate as its definition of price stability and remove the monetary pillar from its official monetary policy strategy. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.

External author

Professor Karl WHELAN

Thoughts on a Review of the ECB’s Monetary Policy Strategy

15-11-2019

Time is ripe for a review of the ECB strategy: the economic context and the audience for communication have changed, and the tools for policy decisions and for analysing the environment have expanded. The definition of the inflation target, the two-pillar strategy and the use of “non-standard” policy measures need discussion. A change in the ECB mandate is also worth discussing for it would permit to evaluate the current strategy and mandate against an alternative. This document was provided by Policy ...

Time is ripe for a review of the ECB strategy: the economic context and the audience for communication have changed, and the tools for policy decisions and for analysing the environment have expanded. The definition of the inflation target, the two-pillar strategy and the use of “non-standard” policy measures need discussion. A change in the ECB mandate is also worth discussing for it would permit to evaluate the current strategy and mandate against an alternative. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.

External author

Christophe BLOT, Jérôme CREEL and Paul HUBERT

The Two-pillar Strategy of the ECB: Ready for a Review

15-11-2019

Inflation has remained below the ECB’s own target of ‘below, but close to 2%’ for a long time despite massive doses of unconventional policies, suggesting that the present ‘two pillar’ strategy does not work. A review of the strategy will be useful only if it is entrusted to independent experts. Otherwise, it is likely to result in the finding that only marginal changes to the existing strategy are needed and that larger doses of the present policy will be sufficient to achieve the inflation target ...

Inflation has remained below the ECB’s own target of ‘below, but close to 2%’ for a long time despite massive doses of unconventional policies, suggesting that the present ‘two pillar’ strategy does not work. A review of the strategy will be useful only if it is entrusted to independent experts. Otherwise, it is likely to result in the finding that only marginal changes to the existing strategy are needed and that larger doses of the present policy will be sufficient to achieve the inflation target. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs (ECON) Committee.

External author

Daniel GROS, Angela CAPOLONGO

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