Mr Erçel discusses the monetary policy of the European Central Bank Opening speech by the Governor of the Central Bank of the Republic of Turkey, Mr Gazi Erçel, at the Economic Research Foundation, Istanbul. 18/12/98 European economic and monetary union (EMU) will come to life at the beginning of next year. The European Central Bank (ECB) will commence operations, and the euro will become an official reserve currency. Eleven of the 15 countries in the European Monetary System will link their domestic currencies to the euro by January 1, 1999. They will stop issuing their own currencies three years later. There will no longer be independent domestic monetary and exchange rate policies. Instead, monetary and exchange rate policies will reflect the needs of the euro region as a whole, as determined by the European Central Bank. This stage has obviously not been reached easily or quickly. This new institutional arrangement was the product of years of effort. First the philosophical groundwork had to be established, before the technical work could even begin. The final stages were only reached gradually. The European Union was thoroughly thought out. Under German initiative, with French support and British technical assistance, and contributions from all the others, the institutions were established which will be responsible for monetary and exchange rate policy decisions under the Maastricht Treaty and the Stability and Growth Pact. Countries have made heroic efforts to satisfy the Maastricht convergence criteria.
This means that a central bank that has control over monetary indicators should use these indicators as intermediate targets in reaching its final inflation target. On the other hand, in low-inflation environments we have seen how successful the implementation of monetary policy under inflation targeting can be. The ECB will follow both procedures together, in accordance with the principles of independence, transparency, a forward-looking policy orientation and accountability. The ECB’s credibility will grow. It will solve the problems that arise and correct its operational deficiencies. It will strive to attain and maintain price stability. Achievement of this objective in the medium term will create conditions conducive to sustainable growth. Growth and employment will follow a sound path. I see it at this stage as a perfectly designed set of strategies and applications. *  *  *  BIS Review 1/1999