Joachim Nagel ©Frank Rumpenhorst

The Bundesbank turns 65: Bundesbank President Joachim Nagel stresses importance of price stability

The Bundesbank will turn 65 on 1 August 2022. The legislation which brought it into being, the Bundesbank Act (Gesetz über die Deutsche Bundesbank), was signed into law on 26 July 1957 by the Federal President. When the Act entered into force on 1 August 1957, the Bundesbank took up its work as an independent monetary policy institution. “The Bundesbank’s greatest achievement is certainly that it has created a culture of monetary stability and embedded it in the public consciousness”, said Bundesbank President Joachim Nagel in an interview he gave to Deutsche Presse-Agentur (dpa) to mark the anniversary. He added that, "over many turbulent years, citizens have been able to rely on the stability of our currency," recalling the oil crises in the 1970s and the challenges of reunification.

"High inflation must not be permitted to become entrenched"

He noted that the currently very high inflation rates were weighing on many people and illustrated the importance of price stability, adding that the ball was now in the court of monetary policy. Although it could not change the main causes – the war and the pandemic – “we can and must now do everything we can to prevent the current high level of inflation from becoming entrenched”, according to Mr Nagel. He believes the still highly accommodative monetary policy stance has to be brought to an end quickly and sees the policy rate hike that has now been decided as a first important step. “Otherwise, we run the risk of having to increase interest rates all the more abruptly and sharply further down the line,” he continued. To him, this was also one of the lessons taught by the history of monetary policy. The Bundesbank, in concert with the ECB and the other national central banks, is doing all it can to bring the inflation rate back down to 2% target and to keep it there, even notwithstanding the challenges posed by climate change, the “energy U-turn,” demographic change and digital transformation. “People trust the Bundesbank, and they should continue to be able to do so.”

The Deutsche Bundesbank

The Deutsche Bundesbank was established as the central bank of the Federal Republic of Germany in 1957 and kept the D-Mark stable for four decades. When the euro was introduced, its founders decided in favour of an independent central bank system modelled on the Bundesbank and primarily committed to price stability. Since then, the Bundesbank, as an integral part of the Eurosystem, has been making a key contribution to the stability of the single currency. 

As a member of the ECB Governing Council, the President of the Bundesbank is involved in monetary policy decisions. The primary objective of monetary policy is to maintain price stability. The Bundesbank performs other key tasks at both the national and international level which go above and beyond monetary policy. To maintain investor confidence and prevent unsound developments in the banking industry, the Bundesbank supervises credit institutions and financial services institutions in Germany and is a participant in the Single Supervisory Mechanism (SSM) for banks in Europe. In addition, it analyses the stability of the financial and monetary system as a whole. Through its branch network, the Bundesbank constantly supplies shops and banks in Germany with sufficient high-quality euro banknotes and coins. Moreover, it ensures the smooth settlement of domestic and cross-border cashless payments, and also manages the gold reserves. Its headquarters are in Frankfurt am Main.