Abstract

The ECU as a Yardstick and Reserve Asset in the EMS

Whereas the European UA in the former “snake” system served merely as a unit of account, the ECU of the EMS fulfils substantially more far-reaching functions as a reference point for the key exchange rates of the participating currencies and an indicator of exchange rate divergence, and also as a reserve asset and means of payment for the EC central banks. The configuration of this system built up around the ECU at its centre was the subject of heated debate. Not only for technical reasons, but also on stabilization policy grounds, there was much to be said against the ECU intervention system initially favoured by some member countries, in which the value of the ECU itself was to be defended within a certain margin (socalled basket system). And even in the system of bilateral parities which was finally put into effect, in which, however, the key exchange rates are likewise fixed on the basis of the ECU, not all the problems of the basket system have been eliminated. Above all, the concept of divergence from the community mean as a yardstick for distributing the burdens of adjustment reappears - in the shape of the divergence indicator - in a weakened form. The judgment on this indicator function will depend, in the final analysis, on what consequences follow the lighting up of the indivator in the way of practical monetary policy measures. With regard to the ECU’s reserve-asset function, the misgivings of some countries related principally to the creation of liquidity via extensive credit facilities. In general, it must be said that the success of this ECU-based monetary system must not be expected to come exclusively from the intervention and credit mechanism; a necessary prerequisite is rather improvement of economic convergence. On this basis, the ECU can - through initially probably only to a limited extent - also be applied for other purposes, especially in the private sector.