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.

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 Bundesbank controls the country's monetary policy to maintain price stability. The bank cooperates with the European Central Bank (ECB) and the other euro-area central banks, which form the Euro system. The president of the Bundesbank President votes on the Governing Council of the ECB.

The Governing Council of the ECB maintains price stability by applying monetary policy measures to increase the euro area’s average price level below 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 an economic boom. In 2017, Bundesbank experts predicted that gross domestic product (GDP) would increase by 2.0% in 2018, 1.9% in 2019, and 1.6% in 2020. In 2017, the German economy 2.5% in the previous year. At the time, President Jens Weidman commented, "Overall, the projection paints a picture of an ongoing economic boom, in which increasing supply-side bottlenecks are reflected in strong wage growth and in higher domestic inflation."

In actuality, the economy grew at 1.52% in 2018 and only 0.6% in 2019. This marked a sharp slump in growth and the weakest expansion of the German economy since 2013. This slowdown was attributed to a lack of skilled workers, hampering economic growth and limiting the households' disposable income and consumer spending. Up until 2019, the German economy had grown every year for 10 years—the longest period of growth in united Germany. This period of expansion was ultimately interrupted by the global economic impact of the Covid-19 pandemic, beginning in early 2019. However, Germany's response to the pandemic has been widely praised and its efficient government, low debt, and its strong export trade may provide a more promising recovery than other Western countries.