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Home  >  Fundamental analysis  >  Central banks  >  Deutsche Bundesbank

Deutsche Bundesbank

The central bank of Germany, known as Deutsche Bundesbank of simply Bundesbank for short, is the most important financial institution in Germany with the exception of the federal government itself. The bank has been in existence since July 26 1957 when the Deutsche Bundesbank Act was passed. The bank has always stated that its primary goal is price stability, a goal it has succeeded in since its conception. Through its popular opinion and voice within Germany, Bundesbank has formulated and kept a successful policy in Germany throughout Europe and the rest of the world that supports solid currency value.

Bundesbank has earned a stellar reputation in its postwar years thanks to its ability to contribute to Western Germany and Western Europe as a whole's economic and political stability. Even critics who disagreed with some of the banks policies typically give credit for the nice job the bank has done.

Bundesbank appears to be the primary party responsible for German economic policy but its responsibilities are actually far more regulated in accordance to the law passed in 1957 which gave birth to the bank. The bank's primary task it is responsible for according to the law is simply to preserve the German currency, a goal so important that it was clearly given precedence over the central bank's second central goal of supporting the general economic policy of the federal government. Bundesbank's second task is even significantly restricted thanks to the condition stating that the bank would not receive any instructions from the Federal Government.

Bundesbank is considered to have the most power in the area of monetary policy when compared to any other large European bank. In structure (although not in the formal mandate), Bundesbank is loosely based on the US Federal Reserve bank even surpassing the executions exerted by the Federal reserve due to the fact that Bundesbank administers some exchange responsibility on behalf of the United States Department of Treasury. The bundesbank issues banknotes and adjusts short term interest rates for loans given to various banks and loans given to fund businesses (known as the Lombard rate) in order to obtain their goal of monetary policy.

What makes Bundesbank so well respected and noted is its philosophy that is against inflation. This philosophy is rooted in its determination to avoid the chaos caused by high inflation rates in the early 1920s at any cost necessary. The avoidance of inflation is central to almost every decision made by the bank and has given it high accolades.

The deutsche Bundesbank is comprised of several governing bodies. They include the Central bank council, the Directorate, and the Executive Boards of the Land Central Banks.

The Deutsche Bandesbank is the central bank of Germany and as such is naturally a vital portion of the European System of Central Banks (ESCB). Its role in the ESCB is to take part in all activities especially with regards to maintaining price stability and ensuring that all domestic and international payments take place in a timely fashion.

The Deutsche Bandesbank's antiinflamation philosophy are also extremely compatible with German demographics. A large part of the German population is aging and as such are living on pensions and fixed investment incomes. As such price stability has become an important concern for a large percentage of the population who are thus advocate Bundesbank's platform against inflation.

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