Opinion of the European Monetary Institute on a consultation by the Finnish Ministry of Finance under Article 109f (6) of the Treaty establishing the European Community and Article 5.3 of the Statute of the EMI; on a draft amendment of the Finnish Currency Act (358/93) (CON/95/16)
Date: 1995-12-11
Institutions: European Monetary Institute
Subjects: EMS exchange-rate mechanism, Finland, money, national law

OPINION OF THE EUROPEAN MONETARY INSTITUTE

on a consultation by the Finnish Ministry of Finance under Article 109f (6) of the Treaty establishing

the European Community and Article 5.3 of the Statute of the EMI;

on a draft amendment of the Finnish Currency Act (358/93).

CON/95/16

1

On 9th November 1995 the Finnish Ministry of Finance transmitted a request for consultation to

the EMI on a draft amendment of the Finnish Currency Act (358/93) (“the Draft).

2

The Currency Act was issued on 16th April 1993.  The  Draft  proposes  to  repeal  Article  3  and

amend Article 4 of this Act. The objective of the Draft is to form the legal basis for Finland’s

decision  to  participate  in  the  Exchange  Rate  Mechanism  of  the  European  Monetary  System

(“EMS”),  when  the  circumstances  permit  to  discontinue  the  current  floating  exchange  rate

regime. The changes proposed in the Draft would not affect the present floating exchange rate

regime of the Finnish markka, nor prevent a continuation of this regime.

3

The  EMI  welcomes  the  removal  of  existing  legal  obstacles  which  prevent  Finland  from

participating in the Exchange Rate Mechanism of the EMS.

4

Article 3 of the Currency Act defines the unilateral link of the  markka to the currencies of the

European Community as the prescribed foreign exchange regime, while allowing for the present

floating  regime  as  a  temporary  situation.  By  repealing  this  article,  the  amended  Currency  Act

will no longer specify any prescribed exchange rate regime. Rather, the new Article 4 will deal

only with the division of responsibilities in the context of decisions related to the external value of

the Finnish markka.

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5

According to the Draft, the Council of State shall make decisions regarding the external value of

the  markka  on  a  proposal  by  the  Bank  of  Finland.  Such  proposal  shall  be  made  by  the

Parliamentary Supervisory Board on a proposal by the Board of the Bank of Finland. Although

the steps in the decision-making process are clear, the competence of the bodies involved might

need  further  clarification.  The  Draft  could  be  interpreted,  on  the  one  hand,  to  imply  that  all

decisions, including the ones relating to the day-to-day management of the  markka’s  exchange

rate, would be taken by the Council of State; on the other hand, the detailed rationale attached to

the Draft clearly states that the Council of State shall make decisions concerning the exchange

rate  system  or  regime,  which  implies  that  the  daily  management  of  the  markka  exchange  rate

should be left to the Bank of Finland.

6

In order to expedite any lengthy decision-making process prescribed in the Draft, § 4 foresees as

an  option  that  the  Council  of  State  may,  on  a  proposal  by  the  Bank  of  Finland,  authorise  the

Ministry  of  Finance  to  decide  on  changes  in  the  markka’s  external  value  or  fluctuation  limits,

within  the  framework  of  the  European  Monetary  System.  This  option  would  provide  sufficient

flexibility  and  rapidity  with  regard  to  ERM  realignments.  There  is  a  danger,  however,  that,  by

specifically referring to the European Monetary System, this provision might not apply if the legal

framework  for  exchange  rate  policy  co-operation  within  the  EU  were  to  be  changed.

Specifically,  this  difficulty  might  arise  in  the  event  that  an  entirely  new  intra-EU  arrangement

between  the  European  currency  area  and  other  EU  countries  were  set  up  in  Stage  Three  of

EMU.  Thus  a  wording  which  would  avoid  an  explicit  reference  to  the  European  Monetary

System would allow more flexibility and reduce the likelihood that a new amendment would be

needed later on. Finally, further clarification might be needed, since the scope and the duration of

the authorisation are not specified.

7

In the provision according to which “the Bank of Finland shall be entitled to temporarily disregard

the  fluctuation  limits”,  it  should  be  made  more  explicit  that,  in  the  context  of  the  ERM,  such  a

step might be taken only after multilateral consultation of the member states participating in the

ERM.

8

The EMI has no objection to its opinion being made public.

11th December 1995