What Is the Bundesbank?

The Bundesbank, or Deutsche Bundesbank, is the central bank of Germany and is the equivalent of the U.S. Federal Reserve. It is located in Frankfurt, Germany, and it has a group of nine regional offices throughout the country—in Berlin, Dusseldorf, Frankfurt am Main, Hamburg, Hanover, Leipzig, Mainz, Munich, and Stuttgart. Like most central banks worldwide, the Deutsche Bundesbank oversees the nation's banking system and monetary policy. However, because it operates as part of the European System of Central Banks using the euro as its currency, the Bundesbank functions in some respects similarly to the regional branch banks of the Federal Reserve System, rather than a truly independent central bank. The Bundesbank participates in European Central Bank monetary policy decision making, and that policy in Germany, but does not set its own independent monetary policy.

Key Takeaways

  • The Bundesbank, or Deutsche Bundesbank, is the central bank of Germany and is located in Frankfurt, Germany.
  • The Bundesbank is considered by many to be the most important and stable central bank in the European Union due to Germany's reputation for diligent fiscal and monetary measures.
  • The current president of the Bundesbank is Dr. Jens Weidman.

Understanding the Bundesbank

The Bundesbank was once in charge of the German Deutsche mark. However, Germany has since adopted the euro (in January 2002). The Bundesbank is part of the European central banking system. The Bundesbank is considered by many to be the most important and stable central bank in the European Union due to Germany's reputation for diligent fiscal and monetary measures.

The Bundesbank is governed by the Executive Board, which is composed of the president, the vice-president, and four other members. The members of the Executive Board are appointed by the president of the Federal Republic of Germany. The president serves for eight years, and the current president, who is nominated by the Federal Government, is Dr. Jens Weidman.

The Budesbank doesn't control its own currency or set its own independent monetary policy. Instead, the bank cooperates with the European Central Bank (ECB) and the other euro-area central banks, which form the European System of Central Banks. The president of the Bundesbank votes on the Governing Council of the ECB. The Bundesbank implements the ECB's monetary policy throughout Germany to achieve the ECB's monetary policy goals and objectives for Europe.

The Governing Council of the ECB maintains price stability by applying monetary policy measures to target the euro area’s average price inflation of 2% each year. The ECB also controls the interest rates at which commercial banks lend money. Because lending rates affect purchasing and investment decisions, the monetary policy of the ECB influences prices. The Bundesbank also settles the refinancing operations of the Eurosystem, and its experts provide information on Eurosystem monetary and economic policy issues.

In recent years, Germany has experienced slower economic growth, exacerbated by the global economic impact of the COVID-19 pandemic, beginning in early 2020. Germany's GDP grew by only 0.6% in 2019. As the COVID-19 pandemic hit Europe, and Germany locked down businesses, public gatherings, and schools, Germany's GDP dropped sharply. Third quarter GDP bounced back 8.2% over the summer, but remains well below 2020.