Abstract

ECU – From an Insider Currency to a Parallel Standard

The European Currency Unit (ECU) is the centre-piece of the European Monetary System (EMS) which was established in March 1979. Besides the official use of ECU within the EMS the private use of ECU has been increasing remarkably during the past. The ECU-market is a growing special sector of international financial markets in spite of some legal problems in connection with currency laws. With the advanced size of the international ECU-market, the classical functions of money are fulfilled to a modest degree. To some extent the ECU is accepted as a foreign trade currency, particularly in countries with high inflation rates. Although its suitability to be used as a store of value is reduced by the share of weaker currencies and the inconstant definition of the currency basket, the ECU developed very succesfully to an important international bond currency. The ECU as a unit of account has been gaining some importance in the European banking sector. But a broader use of private ECU is limited as long as its status as a foreign currency has not yet been clarified, especially in the Federal Republic of Germany. The Bundesbank is in a somewhat isolated position among European central banks because of its opposition to the acknowledgement of the ECU as a foreign currency. The principle of free capital movements demands a complete allowance of international ECU-transactions. The present treatment of ECU-transactions in the FRG has a negative impact on the competition amongst banks, too. A recognition of the ECU as.a foreign currency would neither imply negative consequences for stabilisation policy nor impair the leeway for monetary policy in West Germany. But it could have some advantages for banking supervision. For these reasons, the ECU should have the status of a foreign currency in the FRG.