Irish Central Bank printing money?
Posted by WARREN MOSLER on January 17th, 2011
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> (email exchange)
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> On Sun, Jan 16, 2011 at 12:34 PM, qrote:
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> Had you heard about this?
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Central Bank steps up its cash support to Irish banks financed by institution printing own money
Yes and no:
“A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.”
My understanding is that rather than keep all the member bank accounts themselves, the ECB utilizes the existing member nation Central Banks as their designated agents for transactions purposes.
So the member banks in the euro zone have their clearing accounts with their national banks.
That means funding for the member banks comes via credits to their accounts at their local central bank, and it’s the personnel at those local central banks, like the Irish Central Bank, who enter the actual debits and credits for the member bank accounts.
In the case the ‘money that’s being created’ is describing secured lending to the member banks as per ECB policy and directive, with the Irish Central Bank making the actual debits and credits to the Irish commercial bank accounts on their books.
It’s somewhat like the US where the NY Fed, for example, keeps the books for it’s member banks.
January 17th, 2011 at 5:10 pm
yeup. makes sense to me. thanks for that info.
I have heard arguments that the Euro is really no different than a gold standard currency since it is based on debt to gdp ratios in each sovereign (hence the austerity measures). Would you say this is true? Is the Euro then under an MMT system and if so is it as stable as the USA’s MMT system?
cheers!
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WARREN MOSLER Reply:
January 18th, 2011 at 8:55 am
the euro is pretty much identical to the dollar, yen, etc. as it’s a fiat currency with a floating fx policy and no convertibility at the central bank.
and now the euro member nations are pretty much just like the US states.
the main difference is the european parliament doesn’t run the budget deficits the US Congress does, which makes all the difference in the world, as the member nations in the euro zone wind up running the counter cyclical deficits without the credit worthiness to support them
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January 17th, 2011 at 11:35 pm
Warren,
Yes, I think you are correct but there is also a silent run on the banks here from the NFC, OFI such as pension funds and now households are withdrawing their deposits as well. This all started when the government signed the agreement with the IMF/ECB, with a hugh jump in the Household sector from an increase in deposits in October of €34m to a €2,353 withdrawal in November.
What do you think will be the outcome of this if this flight of deposits continues?
There was a negative net monthly flow of Irish resident private-sector deposits during November totalling €5.2 billion, bringing the three-month average net flow to minus €2.1 billion. This is in comparison to an average net monthly flow of Irish resident private-sector deposits of minus €677 million in the three months ending October 2010. The negative net monthly flow of Irish private-sector deposits in November was primarily due to a fall in household and OFI/ICPF deposits.
Developments in overnight private-sector deposits have remained volatile. The net monthly flow of overnight deposits averaged minus €479 million in the three months ending November 2010, compared with €987 million over the three months ending October 2010. During November, overnight deposits from households fell by €504 million, which is likely due in part to seasonal factors as it is a common occurrence in November in previous years. Almost the entire decline in OFI deposits during the month was in the overnight category. Total overnight deposits from the Irish private sector were 5.3 per cent lower on an annual basis in November 2010.
Private-sector term deposits with agreed maturity up to two years, declined by approximately €2 billion during November, mostly due to households reducing their deposits in this category. Total private-sector deposits in this category declined by €10.8 billion, or 14.8 per cent in the year ending November 2010.
Private-sector term deposits with agreed maturity over two years rose during November by €110 million, bringing the annual rate of increase in this deposit category to 24 per cent. This mostly relates to a consistent rise in OFI/ICPF deposits in this category over the year.
Private-sector deposits from other euro area residents declined by 3.9 per cent in the year ending November 2010, whereas those from non-euro area residents were 26.5 per cent lower. The underlying net monthly flow of non-resident private-sector deposits, averaged minus €2.3 billion in the three months ending November 2010, with the annual rate of change in total non-resident private-sector deposits being minus 18.9 per cent.
Credit institutions’ borrowings from the Central Bank as part of Eurosystem monetary policy operations increased by €8.2 billion in November 2010, to €138.2 billion. Domestic market credit institutions2 accounted for €97.3 billion of this outstanding stock, an increase of €11.7 billion during the month.
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WARREN MOSLER Reply:
January 18th, 2011 at 8:59 am
yes, without ecb funding it all goes down in very short order.
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January 18th, 2011 at 4:48 am
Mario: To understand MMT read “billy blog” daily.
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WARREN MOSLER Reply:
January 18th, 2011 at 9:02 am
yes, I need to start doing that
:)
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January 18th, 2011 at 8:40 am
I think it’s a bit more complicated than you say. What’s at issue is who bears the loss if things go wrong. Under the ECB programme of collateralized liquidity provision, it is the ECB which has the risk.
But it requires collateral and recently Irish banks have had trouble finding enough of the sort of collateral the ECB demands. In any case, ECB is desperately keen to get out of the activity because the ECB itself is still under capitalized.
So it encourages the Irish Central Bank to do the lending instead. That way if things go wrong the losses stay in Ireland.
The European system is different from the Fed. It is a bit like having all the regional Feds doing their own open market operations instead of centralizing everything on New York.
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WARREN MOSLER Reply:
January 18th, 2011 at 9:15 am
thanks, didn’t realize it might be the Irish Central Bank specifically taking the risk of loss.
and that would be meaningful if there were rigid capital requirements for those CB’s, and the ECB wasn’t permitted to fund them.
As it is, the only thing currently keeping Irish afloat is the ECB’s willingness to fund it and buy it.
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January 19th, 2011 at 2:10 am
thanks everyone. great discussion here. It sounds to me like the ECB ain’t so hot these days imho based on its very structure. It’s as if the ECB wants to have its cake and eat it too by controlling and approving loan practices but being unwilling to take any of the risk and offer definite aide if necessary. Not cool! I think the biggest issue with the EU is that all of these countries just have way too much “historical baggage” with each other. No one really trusts the other and yet the ECB is all about “unity.” A buddy of mine sees war in Europe b/c of the EU…I don’t necessarily agree with that per say but I get what he’s talking about and agree with the underlying issues he is referencing.
Yeah I’m subscriber to billy blog…I just need to take more time to read his posts! He sure is one writer eh?! haha! :D
Thanks again everyone.
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