The Bundesbank’s fundamental task is to safeguard the stability of the currency. Thus apart from fulfilling the traditional role of a central bank, maintaining a sound monetary system, the Bundesbank has a special responsibility for maintaining economic stability. It must ensure the value of the Deutsche Mark both internally and externally. It is therefore commonly referred to as the “guardian of the currency".
By regulating the supply of money in circulation, the Bundesbank keeps the Deutsche Mark stable while at the same time making available the necessary means to finance economic growth. To this end it relies on minimum reserves, refinancing and an open-market policy. The credit institutions are required to keep a certain percentage of their liabilities (minimum reserve) with the Bundesbank, interest-free. By varying this percentage the Bundesbank can influence the credit-creating scope of these institutions. With its refinancing polfcy it regulates the supply of central bank funds to the commercial banks. The discount rate and the Lombard rate are important regulatory factors. Open-market transactions likewise serve to regulate the money market. By buying securities the Bundesbank allows money to flow into the economy; by selling them it withdraws money.
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