§ Mr. Leighasked the Chancellor of the Exchequer what amendments have been proposed to the agreement of March 1979 between the central banks of the European Community which laid down the operating procedures for the European monetary system (EMS).
§ Mr. Ian StewartOn 10 June, EC central bank governors took formal steps to implement the measures to improve the usability of the official ecu agreed in principle last March. The central bank agreement of 13 March 1979, which lays down the operating procedures for the EMS, has been amended and consequential changes have been made to the rules governing the operations of the European monetary co-operation fund (EMCF).
Under the March 1979 agreement, member states participating in the EMS agreed to swap 20 per cent. of their gold and dollar reserves in return for ecus. These swaps are renewed quarterly. The ecus so created can be used by member states participating in the exchange rate mechanism (ERM) to meet liabilities arising out of compulsory intervention.
The changes to be made in these arrangements are as follows. First, member states which have accepted ecus in settlement of liabilities will receive, and those which have used ecus to meet liabilities will pay, a rate of interest which will be more closely aligned to market rates. At present the interest rate on net ecu positions is calculated as a weighted average of member states' official discount rates.
Second, the maximum proportion of ecus which a member state participating in the ERM can be obliged to take in settlement of debts arising out of intervention at the margins of the ERM band is to be increased. At present 231W ecus can only be used as of right for 50 per cent. of any settlement, but this ratio will go up to 100 per cent. to the extent that the recipient of the ecus is itself a net ecu debtor. This does not affect the United Kingdom as we do not participate in the ERM.
Third, since the ecu cannot be used directly in interventions, a mobilisation scheme will be introduced to enable those participating in EMS (including the United Kingdom) to swap part of their ecu holdings for spot dollars for a maximum period of six months in case of need. To meet requests for such swaps, EMS central banks are committed to provide dollars up to an agreed ceiling, but member states may decline to participate in a specific mobilisation operation in exceptional circumstances, such as balance of payments difficulties or the inadequacy of their reserves.
In addition to these changes, there is agreement in principle that non-EC central banks and the Bank for International Settlements should be enabled to hold ecu accounts with the European monetary co-operation fund. The central bank governors have made the necessary changes to the central bank agreement and the EMCF rules but these cannot take effect until Council regulation EC 3181/78 has been amended. The Commission has presented a draft regulation to implement this change.