A More Effective Euro Area Monetary Policy than OMTs – Gold-Backed Sovereign Debt
AbstractThis paper argues that using gold as collateral for highly distressed bonds would bring great benefits to the euro area in terms of reduced financing costs and bridge-financing. It is mindful of the legal issues that this will raise and that such a suggestion will be highly controversial. However, a necessary condition is that the European System of Central Banks (ESCB) has agreed to the temporary transfer of the national central bank’s gold to a debt agency in full independence. This debt agency passes the gold along, in strict compliance with the prohibition of monetary debt financing. The paper also explains that gold has been used as collateral in the past and how a gold-backed bond might work and how it could lower yields in the context of the euro crisis. This move is then compared to the ECB’s now terminated Securities Market Programme (SMP) and its recently announced Outright Monetary Transactions (OMTs). Namely, a central bank using its balance sheet to lower yields of highly distressed countries where the monetary policy transmission mechanism is no longer working. Beyond some similarities between the moves, the specific benefits of using gold in this manner vis-a-vis the SMP and the OMTs are highlighted. For instance, there is by and large no transfer of credit risk between high risk/low risk countries, losses are borne by specific countries and not by the largest shareholders of the ECB, it would turn out to be more transparent, it would not be inflationary and would foster reforms.
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Bibliographic InfoPaper provided by ROME Network in its series ROME Working Papers with number 201303.
Length: 22 pages
Date of creation: Jul 2013
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bond pricing; collateral; debt crisis; gold; gold-backed bonds; Outright Monetary Transactions; Securities Market Programme;
Other versions of this item:
- Ansgar Belke, 2013. "A more effective euro area monetary policy than OMTs — gold-backed sovereign debt," Intereconomics: Review of European Economic Policy, Springer, vol. 48(4), pages 237-242, July.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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- Ansgar Belke & Niklas Potrafke, 2011.
"Does Government Ideology Matter in Monetary Policy? A Panel Data Analysis for OECD Countries,"
Working Paper Series of the Department of Economics, University of Konstanz
2011-48, Department of Economics, University of Konstanz.
- Belke, Ansgar & Potrafke, Niklas, 2012. "Does government ideology matter in monetary policy? A panel data analysis for OECD countries," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1126-1139.
- Ansgar Belke & Niklas Potrafke, 2011. "Does Government Ideology Matter in Monetary Policy?: A Panel Data Analysis for OECD Countries," Discussion Papers of DIW Berlin 1180, DIW Berlin, German Institute for Economic Research.
- Ansgar Belke & Niklas Potrafke, 2009. "Does Government Ideology Matter in Monetary Policy? – A Panel Data Analysis for OECD Countries," Ruhr Economic Papers 0094, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Belke, Ansgar & Potrafke, Niklas, 2012. "Does government ideology matter in monetary policy? A panel data analysis for OECD countries," Munich Reprints in Economics 20245, University of Munich, Department of Economics.
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