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Joachim Fuchs Centre for Technical Central Bank Cooperation Kiev, October 2009

The institutional framework of the Deutsche Bundesbank within the ESCB (European System of Central Banks). Joachim Fuchs Centre for Technical Central Bank Cooperation Kiev, October 2009. name. title. position. company. from. Introduction. Joachim Fuchs. Diplom Bundesbank-Betriebswirt.

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Joachim Fuchs Centre for Technical Central Bank Cooperation Kiev, October 2009

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  1. The institutional framework of the Deutsche Bundesbank within the ESCB (European System of Central Banks) Joachim FuchsCentre for Technical Central Bank Cooperation Kiev, October 2009

  2. name title position company from Introduction. Joachim Fuchs Diplom Bundesbank-Betriebswirt Senior Project Manager Deutsche Bundesbank Frankfurt, Germany

  3. Table of content. A. Introduction B. The way of the monetary union C. The institutional framework ESCB and Eurosystem D. Tasks of the Eurosystem E. The role of the Deutsche Bundesbank in the Eurosystem F. Foreign reserve

  4. Eurozone EU states bound by the Maastricht Treaty to ultimately join the Eurozone EU states with a derogation on Eurozone participation The Eurozone.

  5. Germany Location of Germany.

  6. Federal Republic of Germany. Germany in facts Capital Berlin Berlin Area 357,021 km² Population 82,400,996 Government Parliamentary Federal Republic Frankfurt Organisation 16 federal states

  7. Growth of the GDP.

  8. Public deficit.

  9. Saving Quota. Development since 1992 09

  10. Commercial banks Savings banks and Landesbanken Credit cooperatives and their regional institutions The German Banking System.

  11. The „Deutsche Bundesbank“. Building of the„Deutsche Bundesbank“in Frankfurt, Mainin Germany

  12. Table of content. A. Introduction B. The way of the monetary union C. The institutional framework ESCB and Eurosystem D. Tasks of the Eurosystem E. The role of the Deutsche Bundesbank in the Eurosystem F. Foreign reserve

  13. 00 75 05 95 90 85 80 The history of European monetary integration. European Monetary System (EMS) Delors report – three stages towards EMU ERM II entry of Estonia, Lithuania, Slovenia, Lativa, Malta, Cyprus, Slovakia New MS Slowakia Year Introduction to the euro as „virtual currency“ in 11 MS; abolishment of EMS and establishment of Exchange Rate Mechanism II (ERM II with Denmark and Greece) Introduction of euro bank-notes and coins in 12 MS New MS Malta and Cyprus Earlist entry to the Monetary Union of the 4 accession countries

  14. EURO EURO Eurosystem and ESCB. European System of Central Banks (ESCB) 27 states Eurosystem European Central Bank National Central Banks Participating in monetary union 15 states Not participating in monetary union 12 states

  15. 01 Belgium 02 Bulgaria 03 Czechia 04 Denmark 05 Germany 06 Estonia 07 Ireland 08 Greece 09 Spain 10 France 11 Italy 12 Cyprus 13 Latvia 14 Lithuania The European System of Central Banks (ESCB). 15 Luxembourg 25 16 Hungary 17 Malta 06 26 18 Netherlands 13 04 19 Austria 14 27 20 Poland 07 18 20 21 Portugal 01 05 22 Romania 03 24 15 23 Slovenia 19 16 22 10 24 Slovakia 23 25 Finland 02 26 Sweden 21 09 11 08 27 United Kingdom 12 17

  16. The Eurosystem. 01 Belgium 14 Malta 13 02 Germany 15 Cyprus 03 Ireland 16 Slovakia 04 Greece 04 05 Spain 06 France 03 09 07 Italy 01 02 08 Luxembourg 16 08 09 Netherlands 10 06 10 Austria 12 11 Portugal 12 Slovenia 11 07 05 04 13 Finland 15 14

  17. Economic and Monetary Union (EMU) EU Member States which have adopted the euro EU Member States witha special status

  18. Cornerstones of the Eurosystem. The primary objective of the ESCB is to maintain price stability(Art. 105 (1) EC Treaty and Art. 2 ESCB Statute).Price stability is defined as a year-on-year increase in the HICP of below but close to 2 % . It is of crucial importance that the ECB and the NCBs are independent in the fulfillment of their tasks(Art. 108 EC Treaty and Art. 7 ESCB Statute). Credit facilities with the ECB or with the NCBs in favour of Community institutions or national public authorities and the direct purchase from them by the ECB or the NCBs of debt instruments are prohibited(Art. 101 (1) EC Treaty and Art. 21 ESCB Statute).

  19. Price stability in the EC Treaty. Article 2 (1) Article 105 (1) Article 4 (2) … the Community shall have as ist task … to promote … non-inflationary growth … The primary objective ofthe ESCB shall be to maintain price stability. Single monetary and exchange-rate policy the primary objective of both which shall be to maintain price stability …

  20. EURO EURO Price stability. Article105 of the Treaty establishing the European Community „I. The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2.“

  21. Independence. Article 108 of the Treaty establishing the European Community „When exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body.“

  22. Three stages of European Monetary Union. Stage 11th January 1990 Stage 201 January 1994 Stage 3 01 January 1999 • Free movement of capital • Close cooperation between national central banks (NCBs) • Statutes of ESCB, ECB and EMI • Establishment of the European Monetary Institute (EMI)- Coordination of national monetary policies- Preparation of stage 3 • Conversation rates irrevocably fixed • Single monetary policy • Changeover the euro as sole legal tender from 01 January 2002 • NCB independence • Avoiding excessive deficits

  23. Table of content. A. Introduction B. The way of the monetary union C. The institutional framework ESCB and Eurosystem D. Tasks of the Eurosystem E. The role of the Deutsche Bundesbank in the Eurosystem F. Foreign reserve

  24. Benefits to the Euro. Security of purchasing power Removal of transaction costs Elimination of exchangerate risks Pricetransparency

  25. Key Characteristics of the Euro Area in 2008.

  26. Convergence criteria for participating. At stage 3 of EMU (Art. 121 (1) EC Treaty) Price stabilityGrowth of price level not higher than 1 ½ percentage points above that of the three best performing member states Public budget positionBudget deficit not higher than 3 % of GDP and government debt below60 % of GDP Exchange rateWithin normal fluctuation margins of EMS / ERM II Long-term interest ratesNot higher than 2 percentage points above those of the three best performing member states

  27. Price stability – definition. „Price stability shall be defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2 %.Price stability is to be maintained over the medium term.“ The Governing Council aims to maintain inflation rates at levels below, but close to 2 %, over the medium term.

  28. Government debt (60 % of GDP). 2007 2008

  29. Government deficit (3 % of GDP). 2007 2008 BE DE GR ES FR IE IT LU NL AT PT FI SK MA CY SI

  30. ECB‘s capital (1). Countries „ins“ Key for subscription Finland 1,2539 Slovenia 0,3288 Portugal 1,7504 Austria 1,9417 Netherlands 3,9882 Luxembourg 0,1747 Italy 12,4966 France 14,2212 Spain 8,3040 Greece 1,9649 Ireland 1,1107 Germany 18,9373 Belgium 2,4256 Cyprus 0,1369 Malta 0,0632 Slovakia 0,6934 Total Sum „Ins“ 69,7915 % = 4.020.445.721,56 Euro 33

  31. ECB‘s capital (2). Countries„pre ins“ Key for subscription England 14,5172 Poland 4,8954 Rumenia 2,4645 Sweden 2,2582 Denmark 1,4835 Czech Republic 1,4472 Hungary 1,3856 Bulgaria 0,8686 Lithuania 0,4256 Letvia 0,2837 Estonia 0,1790 Total Sum „Outs“ 30,2085 % = 121.814.467,67 33

  32. Table of content. A. Introduction B. The way of the monetary union C. The institutional framework ESCB and Eurosystem D. Tasks of the Eurosystem E. The role of the Deutsche Bundesbank in the Eurosystem F. Foreign reserve

  33. Executive Board - President and Vice-President- 4 additional members Governing Council - Executive Board- The NCB‘s Presidents of the 15 states General Concil - Executive Board- The NCB‘s Presidents of the 27 states Decision-making bodies of the ECB.

  34. Executive Board - President and Vice-President- 4 additional members Executive Board. Implementation of the monetary policy of the ECB Preparation of meetings of the Governing Council Conduct of the day-to-day business of the ECB

  35. Governing Council - Executive Board- The NCB‘s Presidents of the 16 states Key ECB interest rates Liquidity Governing Council. Adopting guidelines and decisions to ensure the perfomance of the tasks of the Eurosystem Key ECB interest rates

  36. General Concil - Executive Board- The NCB‘s Presidents of the 27 states General Council. Reports on convergence Contributes to • The advisory functions of the ECB • The collection of statistical data • The reporting activities of the ECB • The laying down of the conditions of the employment of the staff of the ECB

  37. € dkfjsf Sdfkjs aifijisf Tasks of the ECB. (1) Eurosystem policies Monetary policy operations Guidelines/ Instructions Forex markets Banknotes Cooperation • Definition • Deciding, coordinating and monitoring • Conferred by Treaty • Delegated by EU council • Strategic planning, coordination and harmoni-sation • Monitoring • Intervention(sometimesjointly with individual NCBs • International and European cooperation

  38. Tasks of the ECB. (2) $ Reporting Financialrisks Advisoryfunction Operational hub for 1) systems 1) Foreign reserve assets • Statutory Report • Monitoring • Community institutions • National authorithies • IT systems • Benchmarks for management by the NCBs

  39. Tasks of the NBCs. (1) Article 12.1 ESCB Statute„To the extent deemed possible and appropriate … the ECB shall have recourse to the national central banks to carry out operations which form part of the tasks of the ESCB [Eurosystem].“

  40. Tasks of the NBCs. (2) $ Monetary policy Foreignreserves Paymentsystems Collection of statistics Banknotes • Execution of monetary policy operations • Management- OWN- ECB • Operation • Supervision of respective national systems • Management and supervision of cash operations • Assistance to ECB 1) ESCB

  41. Price development in the euro area. Harmonized Index of Consumer Prices Figures in %

  42. Unemployment in the euro area. Figures in %

  43. Aspects of independence. InstitutionalNo instructions from European or national authorithies PersonalEight-year term, no second term FinancialCentral Banks shall have appropiate financial resources to conduct their tasks and duties FunctionalNo tasks that could endanger the primary objective

  44. Table of content. A. Introduction B. The way of the monetary union C. The institutional framework ESCB and Eurosystem D. Tasks of the Eurosystem E. The role of the Deutsche Bundesbank in the Eurosystem F. Foreign reserve

  45. Functions of the Deutsche Bundesbank. § 3 Bundesbank ActThe „Deutsche Bundesbank, being the central bank of the Federal Republic of Germany, is an integral part of the European System of Central Banks.It shall participate in the performance of the ESCB‘s tasks with the primary objective of maintaining price stability, shall hold and manage the foreign reserves of the Federal Republic of Germany, shall arrange for the execution of domestic and crossborder payments and shall contribute to the price stability of payment and clearing systems.

  46. Structural Reform of the „Deutsche Bundesbank“. Reorganisation of the Bundesbank as a result of the introduction of the euro Amendment of the Bundesbank Act on 30 April 2002Centralisation of the Bundesbank by establishing an Executive Board in Frankfurt and abolition of the Central Bank Council (Directorate of the Bundesbank and Presidents of the former Land central Banks)Reduction of the Bundesbank‘s regional network (nine Regional Offices and 47 branches) Consequence: considerable excess staff

  47. Berlin Frankfurt Division tasks in the Bundesbank. Central Office Principle policy issues Regional Offices Bundesbank representation, service centres, operational tasks (especially banking supervision) Branches Money processing, cash distribution

  48. Number of Bundesbank branches. Since German unification in 1990 the number of Bundesbank branches has been drastically reduced. Until 2007 the net will be further downsized to 47 branches, guaranteeing a much more efficient processing.This reduction is mainly due to the concentration in the financial sector, the evolution of cash-in-transit companies, the ongoing automatisation of payments and the integration into ESCB. Other NCBs in the Eurosystem have taken similar actions.

  49. Bundesbank Branches.

  50. No seat in the Executive Board President 9 Regional Offices1) with branches nominated by the Executive Board Executive Board at the Central Office in Frankfurt. Central decision making and governing body President and Vice-President 6 additonal members nominated by the Federal Government 2 are nominated by the Federal Government and the other 4 by the Bundesrat 1) Berlin, Hamburg, Hannover, Düsseldorf, Leipzig, Frankfurt, Mainz, stuttgart, Munichcc

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