JELLE ZIJLSTRA A CENTRAL BANKER'S VIEW JELLE ZIJLSTRA, A CENTRAL BANKER'S VIEW Selected Speeches and Articles Edited by Prof.dr. C. GOEDHART, Prof. dr. G.A. KESSLER, Dr. J. KYMMELL and Prof.dr. F. DE ROOS .... " 1985 MARTINUS NIJHOFF PUBLISHERS DORDRECHT / BOSTON / LANCASTER Distributors for the United States and Canada: Kluwer Academic Publishers, Inc., 190 Old Derby Street, Hingham, MA 02043, USA for the UK and Ireland: Kluwer Academic Publishers, MTP Press Limited, Falcon House, Queen Square, Lancaster LA 1 1R N, England for all other countries: Kluwer Academic Publishers Group, Distribution Center, P.O. Box 322,3300 AH Dordrecht, The Netherlands Library of Congress Cataloging in Publication Data Zijlstra, J. Jelle Zijlstra, a central banker's view. (Financial and monetary policy studies: v. 10) 1. Banks and banking, Central--Netherlands--Addresses, essays, lectures. 2. International finance--Addresses, essays, lec~~~es. 3. Netherlands--Economic conditions-- 1945- -.\c.cresses, essays, lectures. 4. Monetary policy--Netherlands--Adresse~, essays. lectures. 1. Goedhart. C. (Cornel;s) II. Title. III. Series. 1lr.3116.Z55 lY85 332.1'1'09492 85-R916 ISBN-13: 978-94-010-8768-1 e-ISBN-13: 978-94-()()9-5129-7 DOl: 10.1007/978-94-009-5129-7 Book information This publication is also no. 50 of the Netherlands Institute of Banking and Stockbroking. Copyright © 1985 by Martinus Nijhoff Publishers, Dordrecht. Softcover reprint of the hardcover I st edition 1985 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, record ing, or otherwise, without the prior written permission of the publishers, Martinus Nijhoff Publishers, P.O. Box 163, 3300 AD Dordrecht, The Netherlands. (iv) Contents Preface 0 VII List of abbreviations 0 IX Acknowledgements 0 X Part one. Zijlstra's concerto grosso Zijlstra's concerto grossoO 3 Fourteen annual reports: Themes and variations (1967-1980), by Prof Dr. C. Goedhart Part two. The international monetary system Statement at IMF Annual Meeting, 1967035 Statement at IMF Annual Meeting, 1968039 Statement at IMF Annual Meeting, 1969043 Some aspects of international monetary reform 047 International monetary reform 0 57 The banking system and the EEC 0 65 Reflections on international economic and monetary problemsO 75 v CONTENTS Speech at BIS Annual Meeting, 1974089 Statement at Joint Annual Session of the IMF and the World Bank, 1975099 The world economy and the monetary systemO 105 Speech at BIS Annual Meeting, 19810113 Part three. The Netherlands economic situation The Netherlands economy in 1976 - a stock takingO 125 The Netherlands economy in 19770137 The Netherlands economy after the presentation of the budgetO 153 The construction industry in a macro-economic fixO 163 Part four. General monetary reflections Inflation and its impact on societyO 173 Monetary theory and monetary policy - a central banker's viewO 185 Introduction to 'Schum peter' s Vision' 0 203 Central banking with the benefit of hindsightO 207 Appendix Major events in the international monetary system under the presidency of Dr. ZijlstraO 225 VI Preface On 1 May 1967 Dr. J elle Zijlstra was appointed President of De Nederlandsche Bank, after an already eventful career. Following a brief spell as Professor of Economics at the Free University of Amsterdam, he began a lengthy period of ministerial service in 1952. During his cabinet years, he devised a concept which became known in the Netherlands as the' Zijl stra norm', and which was aImed at keeping the Government's financial deficit in check. He concluded his active political career .as prime minister in 1966-1967. Dr. Zijlstra's career as a politician and central banker covered a period of nearly 30 years during which the economic scene in the N ether lands and in the world underwent wide cyclical ups and downs and impor tant changes of a more long-lasting nature. Successful economic recovery after the Second World War was followed by a period of rapid and rela tively stable economic growth. However, as early as the 1960s the condi tions for the maintenance of equilibrated expansion became less secure. These conditions were further impaired in the 1970s partly as a result of important shocks, such as the oil crises. In the Netherlands, the continuous - and in many respects un bridled - upsurge of government expenditure and the concomitant rise in taxes and social insurance contributions furthered cost inflation and profit erosion. The later years of the 1970s and the early years of the 1980s were marked by mounting financial deficits of the public sector and by stagflation. In the outside world deficient international adjustments and the breakdown of the Bretton Woods system enhanced exchange rate instability and uncertainty. Large swings in competitive positions and in terms of trade, high rates of inflation and severe cyclical cutbacks contri buted to an unstable and rough international economic climate. In the midst of these manifold changes and distortions, Jelle Zijl stra gave unceasing attention to the restoration and maintenance of condi tions which could ensure the continuance and optimal functioning of the VII PREFACE system of free enterprise and free international exchange. He never gave in to the fashion of the day. As a central banker he fully endorsed the view that money matters. He did not hesitate to use direct monetary controls to further monetary stability. However, he remained convinced that other conditions also had to be fulfilled and that other instruments also had to play an indispensable role. He was amongst the first to recognize that the process of profit erosion and upsurge of public expenditure posed a mortal threat to the functioning of the economic system. Dr. Zijlstra constantly stressed the importance of international ad justment and exchange rate stability. When monetarism came in vogue he called himself a moderate monetarist, but in fact he very much re mained himself. Adhering to basically simple rules and principles on mon etary growth, the size and financing of the public sector deficit and wage increases, he was always able to explain clearly what the primary objec tives of macro-economic policy should be in order to restore well-balanced economic conditions and economic growth. This book contains a collection of speeches and articles delivered and published by Dr. Zijlstra in his capacity as President of the Nether lands central bank. They can be seen as catalysts in the monetary debate both at home and abroad. Professor Goedhart has compiled a summary of all of the fourteen President's reports written by Dr. Zijlstra. This sum mary precedes the collection. This book is published by the Netherlands Institute for Banking and Stockbroking (Nederlands Instituut voor het Bank- en Eifectenbedrijf) in honour of Dr. Zijlstra' s outstanding contributions to both economic thinking and policy making. The Institute hopes that his views will con tinue to stimulate all those interested in the subject. R.S.H. MEES Chairman of the Board Netherlands Institute for Banking and Stockbroking VIII List of abbreviations Benelux Belgium, Netherlands, Luxembourg BIS Bank for International Settlements' ECU European currency unit EEC European Economic Community EMS European Monetary system GAB General Agreement to Borrow GATT General Agreement on Tariffs and Trade GNP Gross national product IDA International Development Association IMF International Monetary Fund LDC Less-developed country OECD Organization for Economic Cooperation and Development OPEC Organization of Petroleum-Exporting Countries SDR Special drawing rights UNCTAD United Nations Conference on Trade and Development US United States IX Acknowledgemen ts 'Inflation and its impact on society' was first published in De Econo mist 123, no. 4, 1975. Reprinted with permission. 'Monetary theory and monetary policy: a central banker's view' was first published in De Economist 127, no. 1, 1979. Reprinted with per mISSIOn. 'Introduction to Schumpeter's Vision' was first pubhshed in A. Heer tje (ed.), Schumpeter's Vision: Capitalism, Socialism and Democracy after 40 years, Amsterdam 1981. Reprinted with the kind permission of Insinger , Willems & Cie NY. 'Central banking with the benefit of hindsight' was first published in De Economist 129, no. 4, 1981. Reprinted with the kind permission of De Economist and the Per J acobss<;>n Foundation. x