The relationship between a central bank and its government is key to the issuance and management of sovereign money. These relationships are complex in general and even more so in a multi-country setting where the definition of the sovereign is unclear or transient. In its early years, the nascent Federal Reserve System suffered both from a lack of centralization and a lack of support from the fiscal authority, which made the United States prone to regional feedback loops that had the ability to undermine the par convertibility of currency across the United States. These issues were only solved gradually, in particular through important reforms during the Great depression that not only established centralized monetary operations for the Fed but also provided the necessary fiscal and political support to the Federal Reserve. The relationship between the Federal Reserve and the Federal Government remains however in constant evolution. In comparison, the Eurosystem at its inception was far better designed to avoid the pitfalls of making national borders relevant in the conduct of monetary policy but the issue of the relationship with the fiscal authority and the sovereign was probably more complex. In addition, the modification of risk-sharing arrangements during the crisis—first as a by-product of the extension of its collateral framework and the growing importance of liquidity provision through the European Central Bank's (ECB) emergency liquidity assistance and then with the public sector purchase program— may have contributed to question the integrity of the monetary union and the unicity of money in the Euro Area. We argue that some of the reforms undertaken by the United States during the 1930s might inform further reforms for the conduct of monetary operations and the architecture of the monetary union going forward.
