Mutual Assistance between Federal Reserve Banks, 1913-1960 as Prolegomena to the TARGET2 Debate

Eichengreen, Barry; Mehl, Arnaud; Chițu, Livia; Richardson, Gary

doi:10.2139/ssrn.2438666

Cited by 4 publications

(4 citation statements)

References 26 publications

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“…We pursue this comparison in a companion paper, showing how the domestic loans of national central banks are key to keeping national lending rates in line with the single euro area policy rate (Bazot, Monnet, and Morys 2020). A corollary of this comparison is that settlements between euro area countries (the TARGET 2 system, see Eichengreen et al (2015)) are akin to central bank international assets during the gold standard, and last resort capital controls within the monetary union are equivalent to imperfect convertibility.…”

Section: Discussionmentioning

confidence: 99%

Taming the Global Financial Cycle: Central Banks as Shock Absorbers in the First Era of Globalization

Bazot¹,

Monnet²,

Morys³

2022

J. Econ. Hist.

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The Classical Gold Standard period, with high capital mobility and fixed-exchange rates, is usually seen as the extreme case of international constraints on monetary policy. Contrary to this view, we show how central bank balance sheets offset the effects of international shocks on domestic interest rates. In contrast, in the United States, a gold standard country without a central bank, the reaction of money market rates was two to four times stronger than that of interest rates in countries with a central bank. Our study is based on the monthly balance sheets of all central banks in the world (i.e., 21) from 1891–1913.

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Section: Discussionmentioning

confidence: 99%

Taming the Global Financial Cycle: Central Banks as Shock Absorbers in the First Era of Globalization

Bazot¹,

Monnet²,

Morys³

2022

J. Econ. Hist.

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“…Other responses involve De Grauwe and Ji (2012a) who argue that TARGET claims could be made void without suffering losses because the value of central bank money as 'fiat money' is independent of central banks' assets. Another frequent topic is comparing the TARGET2 system and its balances with the settlement practices within the Federal Reserve System (Lubik and Rhodes 2012; Eichengreen et al 2015).…”

Section: Figure 1-timeline Of European Monetary Integration and The T...mentioning

confidence: 99%

“…To avoid the build-up of interdistrict imbalances, the ISA are settled on a yearly basis in April of every year based on the average yearly balance. The assets used to settle these balances have changed throughout time, notably from gold certificates to the reallocation of SOMA domestic and foreign portfolios in 1975 (Wolman 2013;Eichengreen et al 2015). The Gold Settlement Account-the original form of the ISA-limited the elasticity space of the ISA as it reduced the permanent overdraft and relied on settlements in gold amongst DCBs.…”

Section: Figure 7-scenario 2: Monetary Unification With An Interdistr...mentioning

confidence: 99%

European Monetary Unification through Novation. The Political Economy of the TARGET System

Murau¹,

Giordano²

2022

Preprint

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When Economic and Monetary Union became effective in January 1999, it remained unclear what accounting treatment to choose for claims and obligations that the Eurosystem’s National Central Banks (NCBs) incur against each other in the ‘Trans-European Automated Real-Time Gross Express Transfer’ (TARGET) system. The Governing Council of the European Central Bank (ECB) decided only later in 1999 that they should be shifted to the ECB as an intermediating balance sheet—a process called ‘novation’. This decision has decisively shaped the countenance of the monetary union and its fate throughout the subsequent two decades but so far escaped the scrutiny of scholarship in International Political Economy (IPE). This paper adopts the perspective of critical macro-finance, which approaches the monetary system as a hierarchical web of interlocking balance sheets, to study the political-economic role of the TARGET system and its successor, the TARGET2 system. We theorize on monetary unification and show that novation of claims and obligations to a third-party balance sheet is not the only possible solution to ‘stitch together’ separate monetary systems at their apex, but likely was the only one politically feasible. Drawing on historical TARGET and TARGET2 data, we explain how the novation method at the top of the hierarchy has repeatedly served to defend the integrity of the monetary union, both monetarily and politically. It has also enabled the evolution of the ECB balance sheet as an idiosyncratic tool that the Eurosystem could use to tackle multiple problems, in particular setting up swap lines and introducing unconventional monetary policy.

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“…8TARGET2 has been central to numerous critiques of Eurozone imbalances and crisis (e.g, De Grauwe and Ji, 2012; Bibow, 2013; Eichengreen et al, 2014). …”

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confidence: 99%

From “combined-but-not-unified” to “integrated isolation” - Greek banking in Europe 2010–2015

Labrinidis

Lindo

2022

Competition & Change

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Between 2010 and 2015 Greek banks received capital injections as part of an EU-led rescue package that left the Greek state with large losses on their investments and a debt to repay; in the most acute moments of the crisis the European central bank twice forced the Bank of Greece to assume sole responsibility for any losses on lending to Greek banks, and; in 2015 Greek banks were subject to EU-mandated controls that restricted the transformation of Greek bank deposits into Euros in other forms. Why did European banking infrastructure leave the Greek state facing losses and liabilities alone, while still full members of the EU and Euro Area (EA)? We find that European banking infrastructure is combined-but-not-unified, and that integration requires both. Drawing on Marxist political economy we examine the financial mechanisms in detail and find a scalar split in state provision of banking infrastructure in the EU/EA. At the supranational level, the removal of barriers to cross-border banking and a common rule book. Meanwhile, promises of monetary support, such as deposit guarantees and lending of last resort have largely remained the responsibility of nation states. The combined-but-not-unified structure ensured that when crisis struck, Greece was isolated, yet still fully part of the EU/EA.

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Mutual Assistance between Federal Reserve Banks, 1913-1960 as Prolegomena to the TARGET2 Debate

Cited by 4 publications

References 26 publications

Taming the Global Financial Cycle: Central Banks as Shock Absorbers in the First Era of Globalization

Taming the Global Financial Cycle: Central Banks as Shock Absorbers in the First Era of Globalization

European Monetary Unification through Novation. The Political Economy of the TARGET System

From “combined-but-not-unified” to “integrated isolation” - Greek banking in Europe 2010–2015

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