Saturday, March 19, 2016

Weidmann criticized ECB monetary policy: “helicopter money” encounters in Germany on … – Reuters

helicopter money

The “helicopter money” will be discussed by experts as another possible means of ultra-loose monetary policy.

(Photo: AP)

Frankfurt / Main Bundesbank President Jens Weidmann declines Geldgeschenke for cranking the economy strictly. The idea of ​​such public capital injections recently made under the keyword “helicopter money” sensation. “Instead of bringing ever more daring monetary experiments into play, it would be useful, even pause,” Weidmann told the newspapers the Funke Media Group (Saturday). “Monetary policy is not a panacea, not replace necessary reforms in each country and also does not solve the growth problems of Europe.”

Weidmann emphasized monetary gifts to the citizens were “a highly political decision”, would make governments and parliaments. “The central banks have to a mandate, not least because this is a massive redistribution would entail,” Weidmann said.

The President of the European Central Bank (ECB), Mario Draghi, was in the recent press conference on “helicopter money” addressed been. Draghi replied that they had not thought or talked about in the Central Bank, but also spoke of a “very interesting concept”, which was currently being discussed inter alia academic economists and also could mean “many different things”.



ECB decisions on March 10, 2016

  • the ECB cuts its key interest rate from 0 , 05 to 0.00 percent. The step itself has little direct impact. It is all about the associated signal that the ECB is determined.

  • the ECB cuts the deposit rate in the euro room from minus 0.3 to 0.4 percent. That is, banks that park overnight money at the ECB, pay an even higher penalty. Thus, the central bank will encourage the financial institutions to lend more, rather than to hoard surplus liquidity with her. The higher the penalty, the stronger the incentive, so the calculus. However, this strain on the fragile banking sector. Therefore had been discussed prior to the meeting of the Council also has a graduation of the deposit interest rate, similar to that in Switzerland. Here, the negative deposit rate would only apply if the parked with the central bank liquidity of a bank exceeds a certain limit.
    Draghi but chose against such Modfell. This is difficult to implement in a monetary union with very different banks, he said.

  • the ECB is expanding the volume its monthly bond purchases by 60 to 80 billion euros. As a result, total volume increased to March 2017 240 billion to 1.74 trillion euros. Bond purchases were a signal that understands the market, the chief economist at Berenberg Bank, Holger Schmieding told in advance.

    This step was considered but as quite controversial. For the German Bundesbank, which provides for a further easing of monetary policy critically, this pill is harder to swallow than the reduction of the deposit interest rate. Draghi said, however, the Governing Council decided that measures a “overwhelming majority”. Due the higher volume, the ECB meets with their purchases faster borders: your self-imposed rules, according to them may not buy bonds whose interest rates under the deposit rate are (now minus 0.4 percent). And it must not acquire more than 33 percent of the outstanding bond debt of a country.

    For bonds of international organizations or development banks such as the European Investment Bank (EIB) it is now extending this limit to 50 percent of the outstanding bonds.

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    to prevent shortages, the ECB extends also from the selection of purchased their bonds. In December she has already expanded the range to include bonds of regions and local authorities in the euro area. Now they also bought in by companies listed in Euro corporate bonds with a good rating (investment grade).

  • The ECB expands her program, with which it borrows long term banks on very favorable terms money if they lend more. are four special credit lines from June – technically called TLTRO II – the weighing platform for financial institutions with a term of four years. The costs were based on deposit rates, the ECB has now reduced to minus 0.4 percent. Banks can therefore earn money to borrow money.

    Since 2014 offer monetary authorities targeted cash infusions to. They should move commercial banks to lend more to firms. However, many banks do not need more liquidity. . This therefore helps probably just some ailing institutions

Also, the chief economist at Berenberg Bank, Holger Schmieding, expressed negatively: “the” helicopter money “is nonsense,” Schmieding said in an interview the financial news agency dpa-AFX. it was not necessary Economically and politically it would thus create a dangerous precedent. “It would foster the illusion that the Fed could for citizens simply print more money and thereby solve the problems,” said Schmieding.

The “helicopter money” is considered as another possible means of ultra-loose monetary policy. The core idea: Instead of spending money to pump on the buying of securities in the market, is almost given away central bank money. Receiver could be for example the citizens or the state. Proponents see it as an advantage that the money would arrive on consumption directly into the economic cycle.

Also, ECB chief economist Peter Praet had at least not issued an unfavorable opinion. Theoretically, all central banks use this “extreme instrument,” Praet said in an interview published on Friday the Italian newspaper “La Repubblica”. It imagine only the question of whether and when the application actually makes sense

European Central Bank .: “Hu-Hu helicopter use”

To date was helicopter money than academic gimmick. But ECB chief Mario Draghi calls it “a very interesting concept” and the ECB chief economist considers it a potential tool. If the Governing check for anyone? More …

Weidmann reiterated in an interview of the spark-Mediengruppe his critical attitude to the monetary policy of the ECB , The recent decisions were “very largely” and had not convinced him. “We continue to expect a strengthening of economic activity and prices. It threatens no deflation. “With deflation a dangerous downward spiral of declining prices and an economic downturn is meant.

Because the control is in the euro zone for some time under the ECB’s target of just under two percent, had the monetary authorities decided in Frankfurt just over a week an unprecedented package of measures: They lowered surprisingly the key interest rate from 0.05 percent to zero percent and increased the penalty to be paid is due if financial institutions to park money at the ECB. Finally, the ECB pumped more money into the economic cycle, by the monthly bond runs will be increased from previously 60 to 80 billion euros. All this should be rising faster rates in the euro area and boost sluggish in parts of the monetary union economy.

“But I have repeatedly pointed out that the effect of ultra-loose monetary policy is weaker, the longer it lasts” , Weidmann said. “At the same applies: the greater it is gas, the greater risks and side effects.”

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