The Eurosystem conducts foreign exchange operations according to Article 105 and consistent with the provisions of Article 111 of the Treaty establishing the European Community. Foreign exchange operations include
In the absence of formal agreements or general orientations, the Eurosystem may decide, if and when needed, to conduct foreign exchange interventions. The Eurosystem can conduct them either on its own (unilateral) or within the framework of co-ordinated intervention involving other central banks (concerted).
Interventions may be carried out either directly by the ECB (centralised)and/or by national central banks (NCBs) acting on behalf of the ECB (decentralised), on a disclosed agency basis. Whether the execution of the intervention is centralised or decentralised is irrelevant from the point of view of the ultimate objective of the operation.
Any intervention in EU currencies would be performed without prejudice to the ECB's primary objective of maintaining price stability and would be carried out by the Eurosystem in close cooperation with the relevant non-euro area central bank, in particular with regard to the financing of the intervention.
Foreign exchange interventions may also take place within the framework of the exchange rate mechanism
II (ERM II), which entered into force at the start of Stage Three of Economic and Monetary Union (EMU).
ERM II is based mainly on two legal documents: the European Council Resolution of 16 June 1997 and the
Agreement of 1 September 1998, as amended, between the ECB and the national central banks (NCBs) of
the EU Member States outside the euro area.
Currently, three countries participate in ERM II: Denmark (since 4 January 1999, after participating in ERM I), Lithuania (since 28 June 2004) and Latvia (since 2 May 2005). Other countries that joined the European Union on 1 May 2004 and 1 January 2007 are also expected to enter the mechanism at some stage.
(in force since 29 May 2008)
|Currency||EUR 1 =|
|Danish krone (DKK)||Upper rate||7.62824|
|Latvian lats (LVL)||Upper rate||0.808225|
|Lithuanian litas (LTL)||Upper rate||3.97072|
Foreign exchange interventions can, inter alia, be conducted in the context of institutional exchange rate relations between the euro and the currencies of countries outside the European Union (e.g. the US dollar and the Japanese yen). With regard to these currencies, Article 111 of the Treaty defines two possible alternative institutional set-ups:
Neither of the two aforementioned procedures has thus far been initiated. In both cases, the ECB would be involved either by a recommendation to, or a consultation by, the ECOFIN Council. Both these institutional procedures must, however, be without prejudice to the primary objective of maintaining price stability. The capacity of the ECB to carry out foreign exchange intervention is not restricted by its foreign reserve holdings. The ECB can also fund intervention through other means, such as foreign exchange swaps.