Bank of Spain History and Autonomy in the EMU

History and Autonomy of the Bank of Spain

BDE (Banco de España) origins date back to 1782 (San Carlos Bank). Current name of the Bank of Spain dates back to 1856. In 1874, the Bank of Spain was granted the monopoly of issuing money to the entire national territory, although it was still a private bank. In 1962, the Government, through Decree-Law, proceeded to nationalization.

BDE's maximum significance occurred with the entry into force in 1994 of the Statute of the Bank of Spain (LABE).

LABE and the Treaty of the European Union

The LABE is closely linked to the Treaty on European Union (approved in Maastricht in December 1991), which required the central banks of countries wishing to enter the EMU to be fully independent of government policy on currency before joining the EMU.

This requirement arose because these central banks would become part of the European System of Central Banks (ESCB), a supranational body whose monetary policy must be completely independent of national governments, as stipulated in the Treaty.

Full autonomy and the mandate of price stability

With the entry into force of the LABE, the Bank of Spain began to enjoy full autonomy in the design and execution of monetary policy, as stated in the LABE and in agreement with the terms of the Treaty on European Union. The primary objective was to aim at price stability. Without prejudice to this objective, monetary policy may support the general economic policy of the government.

Main provisions established by the LABE

1. The Bank of Spain would not be subject to instructions from the Government or the Ministry of Economy and Finance.
2. Public entities may not incur overdrafts on their account at the Bank of Spain.
3. The Bank of Spain could not buy directly from the Treasury securities issued by it, or extend credit to the Treasury.
4. The Governor's mandate would be relatively long (six years) and non-renewable; the causes for possible dismissal would be strictly defined.

Autonomy Law 12/1998 and ESCB integration

A few months after the constitution of the EMU, the Autonomy Law 12/1998 of the Bank of Spain was promulgated to ensure the full integration of the Bank of Spain in the ESCB.

It recognized the powers of the European Central Bank in defining monetary policy for the euro area and the powers of the European Community relating to exchange rate policy in the EMU.

BDE is an integral part of the European System of Central Banks and, as such, is subject to the provisions of the Treaty on European Union and the Statute of the ESCB. BDE must adjust to the guidelines and instructions issued by the European Central Bank.