Economic and legal issues in reducing the Eurosystem’s excess of international reserves

Abstract:

Economic studies suggest that the Eurosystem's international reserves ($370 billion) could be reduced by up to half of its existing level. The article discusses the likely size and distribution of excess reserves and proposals for their uses. Small economic gains can be expected from a reserve reduction, as well as an elimination of incompatibilities and conflicts of interest between the conduct of monetary and investment policy. A careful and co-ordinated reserve reduction would pose no threat to financial stability, making it also admissible from a legal perspective against the background of Art. 31 of the ESCB (European System of Central Banks) Statute. Finally, transferring reserves as an extraordinary gain to the government does not constitute monetary financing as prohibited by Art. 101 EC Treaty.