Lending only against self-liquidating commercial paper does nothing to prevent an acceleration in prices, as the central bank’s balance sheet simply accommodates any increase in credit driven by a rising general price level. As central banks around the world came to concentrate on preserving stability in the value of their money in terms of goods and services, they put the Real Bills Doctrine in the dustbin of ideas. Wind forward a hundred years. The buzzword is “macroprudential”. And the talk is of how to lean against speculative bubbles or tame the credit cycle; of how to contain contagion and systemic crises; of the role of central bank liquidity facilities; and of how to give banking supervision a more systemic perspective.1 It is striking that those concerns are not so distant from those of the framers of the 1913 Federal Reserve Act. Much is said about “missing  1  See, for example, “Enhancing Financial Stability and Resilience: Macroprudential Policy, Tools and Systems for the Future, Group of 30, 2010. BIS central bankers’ speeches  1  instruments”. It has been a mistake for central bankers, and the legislators to whom they are accountable, to focus at different points of their history on only one of either the stability-threatening excesses of (real) credit cycles or, alternatively, inflation. In the language of the Bank of England’s 1991 statement of Core Purposes, central banks need a mandate for both monetary stability and financial stability.
European integration is a dynamic project, permanently under construction, which is today facing up to the challenges of a global economic recession and an international financial crisis of proportions unseen in many years. Over ten years ago, before the euro was created, there was an academic debate turning on the theory of optimal currency areas, which questioned whether a single interest rate and, therefore, a single monetary policy could possibly be appropriate for such diverse countries. Ten years after the birth of the euro those of us who joined EMU, and many of those who did not, acknowledge the enormous advantages of being inside the monetary union. Today, the contribution of the single currency in lessening uncertainty for economic agents is clear. The enormous advantages of moderate inflation, of interest rates with a limited range of volatility and of the fact that companies need not consider the exchange rate when buying and selling in an area with almost three hundred and thirty million consumers, are obvious. The upshot is stability, which is a valuable contribution to growth, as we have seen in other, similar-sized monetary areas such as the United States, and we should build on it. We should also celebrate the institutional success of the Eurosystem. The ECB has fulfilled the goal entrusted to it by the Treaty, of keeping inflation expectations anchored, even at very difficult times. And the Eurosystem is in itself a truly fascinating experiment.