Introduction

Abstract

The launch of a single European currency in January 1999 has been sparking a heated debate over what strategy the European Central Bank)s policy should be based on so as to distribute and maintain monetary stability in Europe. In order to pass the Bundesbank)s reputation as a tough inflation fighter on to the European Central Bank there have been strong efforts to make the ECB a close copy of the Bundesbank. It might be surmised that there will be a lot of similarities in its intermediate strategies. Among other indicators, the ECB)s policy will be based on the growth rate of a broad monetary aggregate consistent with its definition of price stability. As a key instrument in the new central bank)s instruments, REPO operations will constitute the main refinancing source of private banks and, in addition, minimum reserve requirements have been introduced to facilitate the authority)s command over the banking sector)s liquidity by means of stabilising the demand for central bank money.