DEUTSCHE BUNDESBANK

Why was the Deutsche bundesbank (German central bank) opposed to the European monetary union?

Why was the Deutsche bundesbank (German central bank) opposed to the European monetary union?

Introduction

The monetary targeting strategy which the Bundesbank has been pursuing since the middle of the seventies is based on this perception. The place of the Bundesbank in Germany's economic policy system, its monetary policy stance and, in particular, the concrete formulation of its policies are shaped to a major extent by past experience and by the structural features of the economy and the financial system in Germany. Over the last decades, prices have risen less steeply in Germany than in most other industrial countries. At the same time, the Deutsche Mark has appreciated strongly in the foreign exchange markets and developed into the anchor currency of the European Monetary System. The stability of the Deutsche Mark owes a great deal to the monetary policy of the Bundesbank, which has been based on a clear statutory mandate, its independent status and its convincing monetary policy stance. Pursuant to the Bundesbank Act, the Bundesbank's primary function is to “safeguard the currency”. To ensure that the Bundesbank is able to pursue this target without hindrance, it is independent of instructions from the government. These cornerstones of the German central bank's constitution have meanwhile come to serve as a kind of model for the future European Central Bank. As, in the long run, inflation cannot occur without an undue expansion of the money stock, control of monetary growth is a key factor in maintaining monetary stability.

The aim of the present booklet is to make the elements of the Bundesbank's policy comprehensible against this backdrop. To this end, the first section outlines the history of the central bank system in Germany and the institutional background of the Bundesbank, and explains its duties and functions. The second section describes the major structural features of the German financial system, which provide the primary starting point for monetary policy measures. The third section focuses on an account of the monetary targeting strategy of German monetary policy. The fourth and final section is devoted to the implementation of monetary policy by the deployment of the individual monetary policy instruments.

Research question

The research question is “Why is the Deutsche Bundesbank (German central bank) opposed to the European Monetary Union".

The role of the central bank in Germany

I. The development of the central bank system in Germany The history of a nation-wide German central banking system began with the creation of a uniform German currency and the establishment of the Reichsbank on January 1, 1876. In the course of the more than one hundred years of its history, the German central banking system has seen a number of severe disruptions. Twice, wartime inflation attributable to the state has led to the complete collapse of the German currency. The Mark, established as a gold-based circulating currency under the Kaiserreich and stable until the First World War, was virtually worthless by the end of 1923; it ...