ECB Warns of Monetary Financing by Central Bank

“…the ECB has continued to monitor several programmes launched by the Magyar Nemzeti Bank in 2014, which were not related to monetary policy and which could be perceived as being potentially in conflict with the monetary financing prohibition, to the extent that they could be viewed as the Magyar Nemzeti Bank taking over state tasks or otherwise conferring financial benefits on the state.

The programmes included real estate investment purchases, a programme to promote financial literacy run through a network of six foundations, the transfer to the central bank of staff formerly employed by the Hungarian Financial Supervisory Authority, and a programme of purchases of Hungarian artworks and cultural properties.”

Read: No more public money “losing its public nature” in the books of Central Bank foundations.

In 2015 the Magyar Nemzeti Bank purchased majority ownership of the Budapest Stock Exchange, which may be seen as giving rise to monetary financing concerns as the Magyar Nemzeti Bank effectively used central bank resources to support an economic policy goal that is typically seen as a government competence.

The Hungarian Central Bank bought the 68.8% of Budapest Stock Exchange (BUX) in November 2015 from the Austrian CEESEG (Österreichische Kontrollbank) and now owns 75% of it.

The Magyar Nemzeti Bank also decided on several changes to its monetary policy instruments to support its self-financing programme. Given the resulting incentives for banks to purchase forint-denominated government securities, some of the changes, taken together, could be seen as a means of circumventing the prohibition of privileged access under Article 124 of the Treaty.

Otherwise known as Münchausen fiscal policy.

Quotes from the ECB’s 2015 Annual Report – Compliance with the prohibition of monetary financing and privileged access – Emphasis my own

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Featured image: Pereszlényi Erika

3 thoughts on “ECB Warns of Monetary Financing by Central Bank

  1. Pingback: 3 Things Orbán Got Right About the EU | Meanwhile in Budapest

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