Introduction

It is generally agreed that a European central banking institution will be an essential feature of the final stage of the European Economic and Monetary Union (EMU). To this end the EC Committee of Central Bank Governors has recently produced a Draft Statute of the European System of Central Banks and of the European Central Bank. Although differences of views among governments of member states have meant that the Draft Statute remains incomplete in a number of areas, the most fundamental and consequential omission is the lack of a clear mandate for the ECB to undertake traditional banking functions in support of the financial sector.

Central banks have traditionally had two major objectives. First, central banks have sought to maintain a stable and efficient financial and payments system. This has generally required performing certain banking functions for the financial sector, such as providing an ultimate source of liquidity (i.e., a discount window), participating in the payments system, and regulating and supervising key sectors of the financial system. Second, central banks have sought to stabilize the price level and general economic activity by carrying out monetary functions such as open market operations, foreign exchange operations, and the establishment of minimum reserve requirements.

The draft Statute mandates the maintenance of price stability as the explicit primary objective of the ECB, and the necessary monetary functions and operations of the system are defined in accordance with standard practice.