The Ecu and The Transition to European Monetary Union

Abstract

The private ECU markets have developed as Eurocurrency markets because of the ECU's portfolio attractions -- a combination of return and exchange risk unobtainable at such low cost from the national currencies. The private ECU functions in the Eurocurrency and foreign exchange markets as a true currency, but supports very lew transactions in goods and services and depends upon the private banks to maintain its basket exchange rate. The possibilities of the ECU being used more for transactions, with liquidity implications for the EC, and of the banks tailing to maintain the basket rate, suggest the need for an HC institution to issue base money ECUs during the transition to monetary union. [F33]