An Investigation into the Role of European Central Bank (ECB) in Assignment - 1

An Investigation into the Role of European Central Bank (ECB) in Conducting Monetary Policy for the Euro Zone - Assignment Example A number of measures are present and could be implemented by European Central Bank. However, care has to be taken so as to avoid market disappointment as well as panic among investors. Monaghan proposes six monetary policy measures that can be implemented to save the Euro. First is Banking license, which would involve ECB granting a banking license for the European region permanent bailout fund. If this is implemented it would make it possible for ESM to borrow from the central bank and in so doing become a lender of last resort and help those countries in difficulties but which are essentially solvent. Morrison argues that Banking license could be a way out in cases of credit difficulty but the impacts on the recipients could be disastrous in the long run and thus be making it less favorable as a method of saving the Euro. The second measure is bond purchases which could happen by ECB buying bonds and this must be done on a large scale in order to make the desired impact and bring the costs of borrowing down. ECB has done in the past with minimal results being achieved. Scholars argue that the only way to ensure that the problem does not recur is to ensure that th e bond buying is made permanent and unlimited so as to have an impact on the Euro. The third measure is quantitative easing which would be done such that ECB would buy bonds across the region with funds that are newly created thus causing a monetary stimulus. Lenza argues that there are a number of monetary measures for exceptional times and quantitative easing is a good measure to save the Euro at this time. The fourth measure is a liquidity boost in order to allow more money to circulate in the economy. This as a measure is only good in the short term as increased liquidity could lead to inflation and thus care has to be taken while using this approach.