Abstract
From its very beginning, the euro has been an important international currency and is bound to become even more so in the future. In other words, the creation of the euro had been regarded as a creative challenger to the international dollar standard, which was full of ambitions. There were some reasons by that time: the European Monetary Union (EMU) was almost as huge an economic and trading unit as the U.S.; it had a large, well-developed and growing financial market, which was increasingly free and was expected to have a good inflation performance that will keep the value of the euro stable.
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- 1.
It was clarified by the Governing Council of the ECB in October 1998 that “price stability shall be defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2 %. Price stability is to be maintained over the medium term”.
- 2.
The euro liquidity absorption resulting from the provision of foreign currency to Eurosystem counter parties via FX swaps was discontinued in January 2010. Until June 2009, this euro liquidity absorption was displayed under autonomous factors, while thereafter is has been part of outstanding open market operations.
- 3.
Covered bond portfolio is displayed under open market operations. The Eurosystem’s Covered Bond Purchase Programme ended, as planned, on 30 June 2010 when it reached a nominal amount of €60 billion. The Eurosystem intends to hold the assets bought under this programme until maturity.
- 4.
We use the data of M3 as all forms of deposits in financial system.
- 5.
We get Currency in Circulation (M0), M3 and Base Money (Monetary Base) from the official reports.
- 6.
Money Multiplier announced by the official reports is almost the same as the Money Multiplier that calculated directly using M3/Base Money, except some certain quarters.
- 7.
Interest spreads always result from the fear of investors that they might lose their money. Investors charge a premium above the interest rate that would be demanded for a presumably safe investment to compensate for the risk that the debt may not be fully repaid. It ensures that interest rate differentials (i.e. spreads) reflect the investors’ risk assessment. Interest rate differentials that reflect investment risks are necessary for the ‘law of one price’, one of the fundamental efficiency requirements of a market economy, to hold.
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Wang, J. (2016). Regional Euro: “Creative, Ambitious, but Trapped”. In: The Past and Future of International Monetary System. SpringerBriefs in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-0164-2_4
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DOI: https://doi.org/10.1007/978-981-10-0164-2_4
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Publisher Name: Springer, Singapore
Print ISBN: 978-981-10-0163-5
Online ISBN: 978-981-10-0164-2
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