Those of us in the bleachers remain bewildered. We had assumed that the ECB, like the Fed, had control over the actual printing of money. Wrong.

"The ECB does not have a cash office and is not involved in any cash operations."

Where the U.S. Treasury's banknote printers have only one customer - the Fed, the production of Euros harks back to the days of wildcat banking in the United States. Each central bank in the Eurosystem that uses a different language has both the responsibility and the legal authority for printing its own Euros.

Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations. The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.


The comparisons with the Cyprus bank crisis are likely to be wrong for one very simple reason: the Greek National Bank can print as many Euros as it likes. It does not need to go to exchange controls; people can withdraw as much as they want as long as they take it in Euro notes.

In April 2001 the ECB's Governing Council decided that the production of euro banknotes should be decentralised and pooled after the initial cash changeover. Therefore, since 2002 each national central bank of the euro area has been allocated a share of the total annual production of euro banknotes in respect of certain denominations. The respective bank bears the production costs for the share allocated. In September 2002 the Governing Council decided to establish a Eurosystem Strategic Stock (ESS). This stock is intended for use in exceptional circumstances, i.e. when logistical stocks in the Eurosystem are insufficient to cover an unexpected increase in the demand for banknotes or in the event of a sudden interruption in supply. The logistical and strategic stocks ensure that any changes in demand for banknotes can be handled at any time by the national central banks, irrespective of whether the demand comes from inside or outside the euro area. The logistical stocks meet the demand for banknotes in normal circumstances in order to replace unfit (poor-quality) banknotes returning from circulation; accommodate an expected increase in circulation; meet seasonal fluctuations in demand; and optimise banknote transportation between central bank branches.

How exactly does the Eurosystem evict a member national bank simply because it has lousy collateral? I have been chewing on that one for a few days now without finding anything in the bottom of the Cracker Jack box.





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