Dr Marek Porzycki Chair for Economic Policy Monetary Law and Monetary Policy 6. Central banking in Poland, the EU and the United States Dr Marek Porzycki Chair for Economic Policy

Structure Central banks National Bank of Poland (NBP) European Central Bank (ECB), European System of Central Banks (ESCB) and the Eurosystem Federal Reserve (Fed) Topics Legal basis for the central bank Organisational structure Basic features: mandate, independence guarantees

NBP – legal basis Article 227 of the Constitution of 1997, for EN text see: http://www.sejm.gov.pl/prawo/konst/angielski/ kon1.htm Law of 29.8.1997 on the National Bank of Poland http://www.nbp.pl/en/aktyprawne/the_act_on_the _nbp.pdf

ECB, ESCB and Eurosystem – legal basis Treaty on the European Union: - Art. 13 (the ECB is listed as an EU institution) Treaty on the Functioning of the European Union Art. 127-133 (monetary policy) Art. 282-284 (institutional provisions) Statute of the ESCB and the ECB (Protocol to the Treaty) „NCB statutes” – national laws governing central banks of EU Member States (see Art. 14 of the ESCB Statute)

Federal Reserve – legal basis Article I, Sec. 8 of US Constitution: „The Congress shall have Power (…) To coin Money, regulate the Value thereof, and of foreign Coin (…)” Federal Reserve Act 1913 (codified as 12 USC Chapter 3)

NBP – structure and bodies unitary legal person of public law Governor (President) of the NBP (Prezes): appointed by the Sejm on request of the President of the Republic, for a term of office of 6 years. Narrow dismissal grounds listed in Article 9(5) of the Law on the NBP. Management Board of the NBP (Zarząd): Governor and 6-8 members (including 2 Vice-Governors) Monetary Policy Council (Rada Polityki Pieniężnej): Chairperson (NBP Governor) + 9 Members appointed for 6 years, in equal numbers by the President of the Republic, the Sejm and the Senate Division of decision-making powers (Art. 11, 12 and 17 of the Law on the NBP)

ECB, ESCB and the Eurosystem European Central Bank An EU institution with seat in Frankfurt am Main. Not a traditional central bank but rather a coordination centre for the Eurosystem/ESCB. European System of Central Banks (ESCB) – ECB and national central banks (NCBs) of all EU Member States (including Member States outside the euro area) Eurosystem – ECB and NCBs of euro area Member States (currently 19, last joined by Lithuania in 2015). Eurosystem carries out jointly central bank functions for the euro area.

ECB decision-making bodies 1 President – appointed by the European Council (EU heads of state or of govt) for a non-renewable term of office of 8 years (Art. 283(2) of the TFEU). Executive Board – the President, the Vice-President and 4 members. Appointment: like the President. Very narrow grounds for dismissal – non- fulfillment of conditions required for the performance of duties or serious misconduct  compulsory retirement by the Court of Justice, acting on application of the Governing Council or of the Executive Board (Art. 11.4 of the ESCB Statute).

ECB decision-making bodies 2 Governing Council (Art. 283(1) of the TFEU, Art. 10 and 12 of the ESCB Statute): 6 members of the Executive Board and governors of the NCBs of euro area Member States (currently 19) main decision-making body of the ECB takes key decisions on monetary policy from 1.1.2015 (adoption of the euro by Lithuania) it votes according to a rotation system (explained here: http://www.ecb.europa.eu/explainers/tell-me-more/html/voting- rotation.en.html)  corresponds to the Eurosystem General Council (Art. 45, 47 of the ESCB Statute): President and Vice-President of the ECB and governors of NCBs of all EU Member States (currently 27) mainly advisory functions in theory it will be dissolved when all Member States adopt the euro  corresponds to the ESCB

Federal Reserve System - structure Board of Governors – a federal agency, comprised of 7 members, appointed by the President of the U.S. for a 14-years term Fed Chairperson – member of the Board of Governors, appointed as Chair by the President of the U.S., for 4- years term Federal Open Market Committee – 12 members (7 from the Board of Governors + 5 from regional Federal Reserve banks) Federal Reserve Banks – 12 regional banks, responsible for their districts member banks – commercial banks owning stock in regional Fed banks

NBP - mandate Primary mandate: price stability (see Art. 227(1) of the Constitution, Art. 3(1) of the Law on the NBP) Understood as inflation within 1% margin below or above 2,5% (inflation target set by the Monetary Policy Council) Secondary: supporting the economic policy of the government, insofar as it does not constrain the price-stability objective (Art. 3(1) of the Law on the NBP)

ECB, ESCB and Eurosystem - mandate Primary: price stability (Art. 127(1) of the TFEU, Art. 2 of the ESCB Statute) defined by the ECB Governing Council as inflation below but close to 2% over the medium term Secondary: support for the general economic policies in the Union, with a view to contributing to the objectives of the EU laid down in the EU Treaty, in accordance with the principle of an open market economy with free competition.

Fed – mandate Plural mandate: long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates (Sec. 2a of the Federal Reserve Act, see https://www.federalreserve.gov/aboutthefed/section 2a.htm) previously informal inflation target of 1,7-2,0% since early 2012 the Federal Open Market Committee has adopted an inflation target of 2,0%, which however does not overrule the Fed’s plural mandate (see FOMC statement of 25.1.2012 http://www.federalreserve.gov/newsevents/press/mo netary/20120125c.htm)

NBP – independence guarantees Constitutional position of the NBP (Art. 227 of the Constitution) and the prohibition on monetary financing (Art. 220(2) of the Constitution) Composition and narrow dismissal grounds of NBP’s decision-making bodies Clear definition of the NBP’s objective and tasks (Art. 3 of the Law on the NBP) Detailed provisions on interaction and cooperation between the NBP and the State authorities, safeguarding NBP’s independence (Art. 21-24 of the Law of the NBP)

ECB and Eurosystem - independence guarantees Prohibition of monetary financing (Art. 123 of the TFUE) Clear definition of the objective and tasks of the ESCB (Art. 127 of the TFUE) Composition and narrow dismissal grounds of ECB decision-making bodies (Art. 129 of the TFUE+ Statute of the ESCB) Prohibition of ECB and NCB taking or seeking instructions from EU institutions or governments, and on influencing the members of ECB or NCB decision- making bodies by EU institutions or governments (Art. 130 of the TFUE) Principle of independence in the exercise of ECB’s powers and in the management of its finances (Art. 282 (3) of the TFUE)

Fed - independence guarantees No strong constitutional or constitution-like guarantees  Congress may amend the Federal Reserve Act or pass legislation influencing the Fed. Fixed long terms of office for members of the Board of Governors, starting and ending by rotation (U.S. President may usually appoint only 1 or 2 Governors during his term of office). Independent source of revenue.

Reading Websites [fragments related to issues covered in the presentation only] NBP http://www.nbp.pl/homen.aspx?f=/en/onbp/onbp.html Fed http://www.federalreserve.gov/aboutthefed/ The Federal Reserve System. Purposes & Functions, 10th ed. 2016, https://www.federalreserve.gov/aboutthefed/pf.htm; https://www.federalreserve.gov/aboutthefed/files/pf_complete.pdf ECB http://www.ecb.europa.eu/ecb/html/index.en.html Hanspeter K. Scheller, The European Central Bank. History, Role and Functions, 2nd ed. Frankfurt 2006 (https://www.ecb.europa.eu/pub/pdf/other/ecbhistoryrolefunctions 2006en.pdf) Additional: F. Mishkin, The Economics of Money, Banking, and Financial Markets, Pearson, 10th ed. 2013, Chapter 14, Central Banks: A Global Perspective, pp. 354-378