The Private ECU: A Currency Floating on Gossamer Wings / David Folkerts-Landau, Peter M. Garber.

Format:

Book

Author/Creator:

Folkerts-Landau, David.

Contributor:

National Bureau of Economic Research.

Garber, Peter M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4017.

NBER working paper series no. w4017

Language:

English

Subjects (All):

European currency unit.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Private ECU

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Cambridge, Mass. : National Bureau of Economic Research, 1992.

Summary:

Today's value of the private ECU is driven by expectations that a European monetary authority will at some future date declare itself willing to convert the private ECU into the official basket at par. Until then, its value is not limited by any existing institutional arrangements in the European Communities, such as the Exchange Rate Mechanism of the European Monetary System. We address the question of what determines the exchange rate between the private ECU and the official Basket, and what determines ECU interest rates. The Bank for International Settlements sets the ECU overnight interest rate on clearing balances as a weighted and lagged average of the money-market rates in the EC currencies, thereby fixing a point on the ECU term-structure. This exogenous fixing of the ECU interest rate and the expectation of a future fixing of the exchange rate satisfy the fundamental requirements for a obtaining a determinate real value of what is otherwise an undefined private ECU unit of account.

Notes:

Print version record

March 1992.

Includes bibliographical references.