The Euro-Currency Markets: Their Credit Effects and the Dynamics of Monetary Policy

Abstract

One of the major analytical and empirical disputes with respect to the Euro-currency markets is the extent to which they are passive in response to money and credit conditions determined in national markets, or alternatively are largely autonomous. The latter view holds that Euro-currency markets have an internal dynamism and an effect on world monetary and credit conditions independently of developments in national markets. An important implication of the latter view is that financial intermediation and credit flows through the markets may respond to national monetary policy in a way that substantially weakens monetary policy autonomy. Regrettably, the important distinction between international capital movements in general, and the specific role of the Euro-markets, is not always made in the analysis. Some analysts would extend the argument by imposing various forms of controls or reserve requirements etc. to limit the role of the Euro-currency markets.