By: hobi50 on Venerdì 19 Giugno 2015 13:01
Tempo fa scrissi un post sul funzionamento dei Target2 sullo splendido blog di Frances Coppola .
Eccolo :
"In the European Monetary Union, when a bank makes a transfer to another country of the Union it loses monetary base.
For the sake of simplicity, let us imagine the country is Greece.
In normal times the same Greek Bank replenishes its monetary base ex ante by getting funds in the foreign interbank market.
If this does not happen, the reduced Greek Monetary base is registered by a Target2 liabilities of the Greek Central Bank towards the ECB, which, in turn, will recognize a Target2 claim in favour of Buba, for instance.
Two things are to be made clear :
1)the target 2 liabilities is obviously an item on the liabilities side of the balance sheet of the Greek Central Bank and it rectifies the value of the monetary base after the daily bank transactions.
We do not get away from the question if we say that target2 acts as a sort of "counters" of monetary base.
2)The passive and active interest rate of targets 2 : what is the reason?
The seigniorage income of ECB, mainly though not exclusively especially after the QE, is due to money printing for loans to member banks.
Greek cross-border transfers, without compensatory amounts from abroad, will cause a decrease in its monetary base and a corresponding increase in the monetary base of the other member countries.
And now the key point .
What will the commercial banks of these countries do? They will repay the loans they got from their central banks and this will make the seigniorage income decrease.
I remember reading, time ago, that German banks had no longer outstanding loans with BUBA.
Finally, the interests (debited and credited) on target2 serve to neutralize the impact of transfer between Member States on seigniorage income of each National Central Bank .
This tecnical preliminary is necessary to understand the heart of the debate between Frances Coppola and Prof. Sinn.
Undoubtedly , Sinn made a mistake when he talked about the Greeks who went into debts with their NCB and transferred corresponding capitals abroad.
We can only say that, tank to the ECB, the Greeks have managed to turn bad euros (theirs) because subject to possible redenomination, into good euros (deposited in the banks of core countries or in their mattresses)
This has been made possible thanks to ELA (money printing)together with lack of control of capital movements.
Frances Coppola quite rightly said there is no currency union unless the capital movements are free.
But Prof. Sinn is right too when he says that time is on Greek side because they are amassing "good" euro abroad.
Unfortunately for core countries, the printed money did not remain in Greece but it ended up abroad, as shown by the strong growth of target2 liabilities.
And now the toughest problem : what will happen to the target2 liabilities of Greece if it exits the Eurozone?
I admit I have knowledge gaps : I do not know if NCBs are legal entities other than the ECB or if they are its component parts.
If they are its component parts, Frances is right : they neutralize each other ; but if they are different legal entities, they are actual liabilities.
Hobi 50 "
Ieri sull'argomento c'era,sempre nel Blog della Coppola, un'ottimo post che condivido in toto.
Eccone uno stralcio :
"But the money in its principal aspect reflects an actual flow of funds. To review, the marginal capital flow of bank deposit money from Greece to Germany gets reflected (in approximate logical order) as (at the margin):
a) As an increase in German commercial bank deposits
b) A corresponding increase in German commercial bank reserves held with the Bundesbank
c) A corresponding increase in Bundesbank T2 surplus balances held “with” the ECB
d) The use by German commercial banks of their new found reserves to repay refinancing loans from the Bundesbank. This constitutes an effective change in the source of commercial bank funding - from Bundesbank refinancing to customer deposits via the capital inflow from Greece
e) An change in the destination of effective Bundesbank lending – from refinancing loans to German commercial banks to surplus T2 balances directed ultimately to Greece via the ECB
f) The loss of Greek central bank reserve liabilities in settlement of T2 replacement liabilities; with follow on refinancing loans/ELA/whatever to replenish those lost reserve balances within the Greek banking system
That is what the basic flow of funds says.
The issue of whether or not Greece’s resulting T2 liability is considered to be debt is largely semantics in the context of a continuing viable participation in the ESCB – given the open ended nature of the allowable accumulation of T2 balances.
But it is less semantic and more substantial as a question in the event of Grexit.
Grexit obviously means the status quo for Greece’s participation in the ESCB is disrupted.
And one interesting question is what happens to the T2 liability.
You have assumed one scenario.
I’m not so sure a non-Greece-inclusive Eurozone will be perfectly comfortable with the prospect of a perpetual 100 billion Euro asset (or a fluctuating balance starting around that level), the other side of which is Greece’s promise to pay the going rate of interest – the least reason for which is that Greece is no longer participating at least fully in the system that decided what that (quite generous) interest rate should be.
Contrary to the preceding status quo, T2 is real external Euro funding for Greece in a post Grexit scenario. It is debt in effect at that point, subject to negotiation on rate and eventual disposition I expect. Greece has a foreign exchange (Euro) liability to part of its newly constructed (de facto) aggregate correspondent banking network, in effect. Sinn is more right than wrong on this."
Anti come può notare il vero busillis del problema non è sulla natura dei Target2 ma che cosa succede esattamente in caso di uscita di un paese dall'Euro.
Hobi
