European Central Bank Governing Council member Jens Weidmann said the ECB must make sure that the single currency retains its value.
“The central banks of the Eurosystem have the responsibility to ensure that people continue to be able to hold good and stable money in their hands,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Frankfurt today. “A currency can only be stable when citizens have trust in their central bank and recognize its will to keep prices stable.”
The Bundesbank openly opposes ECB President Mario Draghi’s plan to buy bonds on the secondary market of countries that sign up to economic adjustment programs, saying it comes too close to financing governments and risks devaluing the euro through inflation. Weidmann didn’t explicitly mention the ECB’s bond- buying policy in his speech today.
Central banks “can more or less create money out of nothing,” Weidmann said. “That possibility is always bound with the temptation to ease the financial restrictions of governments through the printing of money.”
Expectations of central banks increase in times of crisis and they must have the courage to stick to their stability principles to keep the hard-won confidence of the public, Weidmann said.
“To prevent central banks being harnessed into financing government expenditures, they have to remain independent and they have to have a mandate that puts the goal of stable money ahead of all others,” he said.
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