But let us first highlight the huge benefits of EMU precisely in the current crisis. Can anyone imagine how the 16 euro area countries would have weathered the international financial storm had they retained their 16 currencies? Anyone can appreciate the scale and seriousness of the financial problems these countries would have faced had each one retained its currency. Remember what happened in the early 1990s when the effects of the US recession took some time to be felt in Europe, but eventually did so with unusual virulence. Amid the serious challenges arising from German reunification, the lack of a coordinated monetary policy response on this side of the Atlantic then led to massive speculation against exchange rates and to a major foreign exchange crisis, which some did not hesitate to call the collapse of the European Monetary System. This speculation ultimately imposed enormous costs for all the countries involved. This will not happen again now. At this time of enormous uncertainty, the key institution of the Monetary Union, the ECB, has reacted in an exemplary fashion. In the space of five months it has managed to reduce the Euribor from 5.3% to 2% through changes in monetary policy, despite the increases in spreads arising from the financial crisis. And it has further adopted a policy of unlimited liquidity provision, in coordination with other central banks, as illustrated by the agreements for liquidity provision in currencies other than the euro.
These adjustments have allowed us to learn how ON RRPs might be used to support the monetary policy objectives of the FOMC. Our testing has demonstrated that ON RRP operations can set a soft floor on short-term interest rates. That is, while some trades may occur below the ON RRP offering rate, the volume-weighted averages of most money market rates have been above the ON RRP rate on nearly all days (Figure 2). Data across a range of money markets provide evidence that changes in the ON RRP rate affected pricing for both unsecured and secured instruments and that the operations successfully set a floor on short-term interest rates. While market participants are aware of the success in producing a floor from such volume-weighted rates as the fed funds effective rate and GCF Repo Index®, the Desk has been also examining detailed transaction-level data for evidence that the ON RRP sets a floor on nearly all overnight money market transactions. 12  The payment of interest on reserves has been in place since October 2008, although the Federal Reserve Board recently requested public comment on proposed technical changes to the methodology for calculating IOER. The proposal intends to enhance the effectiveness of changes in the IOER rate in moving the federal funds rate into the target range when changes in those rates do not coincide with the beginning of a reserve maintenance period. Further information is available at http://www.federalreserve.gov/newsevents/press/ bcreg/20150413a.htm.