Designing a Central Bank for Europe: A Cautionary Tale from the Early Years of the Federal Reserve System

Important questions concerning the structure and operation of a European Central Bank remain unanswered. Although there exists no precedent for the process of institution-building in which the European Community is currently engaged, the founding and early operations of the Federal Reserve System in the United States provide a suggestive parallel. The US experience suggests that Stage 2 of the Delors Plan contains potential sources of instability and provides an argument for direct transition from Stage 1 (national monetary autonomy) to Stage 3 (centralization of authority). It also suggests the need for more thought about voting and mediation procedures to be used to reconcile and aggregate national interests.