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ECB reassures on Y2K liquidity Back  
The European Central Bank said in August that it sees no need for the public to hold excess cash for the transition to the Year 2000. It claimed that the Eurosystem is well prepared to meet any liquidity requirements resulting from an increase in the demand for banknotes, should the need arise.

The ECB said the Eurosystem’s operational framework ‘was, from the outset, designed with a view to ensuring maximum flexibility in the implementation of monetary policy.’

‘Unlike some of the systems used by other central banks’, not identified by the ECB, ‘the Eurosystem’s operational framework already has built-in mechanisms designed to deal with any level of liquidity demand from market participants.’

The ECB pointed to three aspects of its monetary policy framework which meant that the system could cope with any Y2K liquidity problems.

First, ‘the Eurosystem has at its disposal a diverse range of instruments that may, if necessary, complement its main and longer-term refinancing operations and its standing facilities.

‘Second, the eligibility criteria for collateral required for the refinancing operations of the Eurosystem and the correspondent central banking model (which allows the cross-border use of collateral) ensure that there is a sufficient amount of eligible assets available as collateral even under rather exceptional circumstances.

‘Finally, the averaging mechanism applied to the one-month maintenance period of the reserve requirement system generally contributes to smoothing out temporary liquidity flows.’

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