Opinion of the European Monetary Institute at the request of the French Ministry of Economy, Finance and Industry under Article 109f (6) of the Treaty establishing the European Community (the “Treaty”), Article 5.3 of the Statute of the EMI and Council Decision 93/717/EC of 22 November 1993 on a draft law amending Act 93/980 of 4 August 1993 on the Statute of the Banque de France and the activities and supervision of credit institutions (the “draft law”) (CON/98/12)
Date: 1998-03-13
Institutions: European Monetary Institute
Subjects: European System of Central Banks, France, banking secrecy, central bank, credit institution, decision-making, euro, euro area, financial supervision, paper money

OPINION OF THE EUROPEAN MONETARY INSTITUTE

13 March 1998

at the request of  the French Ministry of Economy, Finance and Industry under Article 109f
(6)  of  the  Treaty  establishing  the  European  Community  (the “Treaty”),  Article  5.3  of  the

Statute  of  the  EMI  and  Council  Decision  93/717/EC  of  22  November  1993  on  a  draft  law

amending  Act  93/980  of  4  August  1993  on  the  Statute  of  the  Banque  de  France  and  the

activities and supervision of credit institutions (the “draft law”)

(CON/98/12)

1.

On  16  February  1998,  the  EMI  received  a  request  for  an  opinion  on  the  draft  law  from  the

French  Ministry  of  Economy,  Finance  and  Industry.  This  opinion  is  primarily  based  on  the

English  translation  of  the  draft  law,  but  takes  also  account  of  the  original  text  in  French.

References in this opinion to articles are references to articles in the draft law unless otherwise

indicated.

2.

The EMI is competent to deal with the present consultation under Article 1.1, second indent, of

Council Decision 93/717/EC of 22 November 1993, since the draft law concerns the status and

powers of the Banque de France.

3.

The draft law intends to adapt the statute of the Banque de France to Treaty and ESCB/ECB

Statute  requirements  under  Article  108  of  the  Treaty  as  repeated  in  Article  14.1  of  the

ESCB/ECB Statute with a view to Stage Three of Monetary Union.

4.

Article 8 of the draft law provides for an entry into force of the draft law on 1 January 1999 or,

alternatively,  the  date  on  which  France  will  adopt  the  single  currency  if  that  would  be  a  later

date. As far as this applies to provisions ensuring the legal integration of the Banque de France

in  the  ESCB,  this  is  compatible  with  the  Treaty  and  ESCB/ECB  Statute.  However,  as  far  as

requirements on central bank independence are concerned, Article 108 requires that adaptations

in this area enter into force at the latest at the date of the establishment of the ESCB/ECB. This

is important as the ECB and NCBs will take many decisions between this establishment and the

end of 1998 which will pre-determine the monetary policy of the euro area and which need to be

implemented at a national level by the national central banks in advance of the starting date of

Stage Three.

- 2 -

The above applies in particular to the last paragraph of Article 1 incorporating the prohibition of

instructions in the statute of the Banque de France, and to Article 6 of the draft law, modifying

Article  19,  submitting  the  Governor’s  appearances  before  Parliament  to  Articles  107  of  the

Treaty and the secrecy rules of the European Central Bank. These should enter into force at the

latest at the date of the establishment of the ESCB.

Furthermore,  and  although  the  Bank  may  be  considered  as  independent  with  regard  to  the

formulation and the implementation of monetary policy, the independence requirements need to

be  applied  to  the  Banque  de  France  as  an  institution  and  not  only  to  the  members  of  the

Monetary  Policy  Council  and  extended  to  all  ESCB-related  tasks  and  not  limited  to  monetary

policy functions.

5.

The  reference  in  Article  1  of  the  draft  law  to  Articles  105(1),  105(2)  and  105(5)  may  be

interpreted as an exhaustive enumeration and it should therefore simply refer to the Treaty.

6.

Article  2  of  the  draft  law  provides  that  the  Banque  de  France  shall,  within  the  conditions

established  by  the  ESCB  Statute,  hold  and  manage  the  State’s  gold  and  foreign  exchange

reserves  and  that  such  reserves  shall  be  recorded  as  assets  of  the  Bank  in  its  balance  sheet.

However,  this  Article  also  adds  that  this  function  will  have  to  be  executed  in  accordance  with

“procedures” (“modalités” in the French text) which will be set by a formal agreement between

the  State  and  the  Banque  de  France.  The  Banque  de  France’s  activities  in  this  context  are

governed  by  the  Treaty  and  the  Statute  as  well  as  the  legal  acts  adopted  by  the  ECB  in  this

respect.  Whilst  it  is  assumed  that  the  above  agreement  leaves  the  Bank  every  freedom  not  to

accept any procedures which might infringe on ESCB-related obligations, references to national

rules,  which  may  hinder  the  Bank’s  independence  and  status  as  an  integral  part  of  the  ESCB,

must be deleted if the above procedures could have such an effect. The above agreement needs,

in any case, being submitted to the ECB for prior approval.

One NCB points out that, in any case, a  formal  agreement  in  the  area  of  ESCB-related  tasks

with  a  national  Government,  even  if  it  hypothetically  required  the  approval  by  the  ECB,  would

not  be  compatible  with  the  independence  of  the  ECB  and  NCBs  as  established  by  the  Treaty

and  the  Statute  of  the  ESCB  and  with  the  legal  integration  of  NCBs  in  the  ESCB.  Therefore,

any reference to that formal agreement should be deleted from the draft law.

7.

Article  2  also  states  that  the  Banque  de  France  may,  without  prejudice  to  Article  6.2  of  the

ESCB/ECB  Statute,  participate  in  international  monetary  “agreements”  (or  “accords”  in  the

French  text)  with  the  permission  of  the  Minister  in  charge  of  Economy.  The  wording  is

confusing.  Article  6.2  of  the  ESCB  Statute  deals  with  the  ECB’s  competence  to  approve  the

participation of national central banks in international monetary institutions while Article 109  of

- 3 -

the Treaty establishes the Community’s competence in the field of international agreements on

monetary  and  foreign  exchange  regime  matters.  The  latter  Article  indicates,  incidentally,  that

there  will  be  no  freedom  for  Member  States  any  more  to    enter  into  international  monetary

agreements. Article 2 should therefore refer, in accordance with Article 6.2 of the ESCB/ECB

Statute to participation in international monetary “institutions”. Should it be purported to have a

wider scope, then it would have to specify that this capacity is “without prejudice to Article  109

of the Treaty”.

The Banque de France states that the agreements falling within the scope of Article  2  will  not

concern ESCB-related tasks; however, this statement should be clearly reflected in the language

of the draft law.

It would be contrary to the independence of the Banque de France to provide for an approval of

the Minister in charge of Economy either to participate in international monetary institutions or in

international agreements on monetary and foreign exchange regime matters.

One  NCB,  however,  considers  that  the  necessity  for  the  approval  of  a  national  Government

would  not  in  any  case  be  compatible  with  the  institutional  independence  required  for  NCBs  by

the Treaty and the Statute of the ESCB, and therefore such national constraint should be deleted

from the draft law.

8. Whilst Article 3 of the draft law on the issue of banknotes refers explicitly to Article 105a of the

Treaty,  it  also  states  that  the  Banque  de  France  shall  have  the  sole  right  to  issue  (“émettre”)

banknotes with legal tender status within metropolitan France. It is understood that this is meant

to  protect  the  sole  right  of  the  Banque  de  France  to  issue  French  franc  banknotes  during  the

transitional period, since after that period euro banknotes issued by the ECB and/or NCBs have

such status as well.

The  restriction  of  the  right  to  issue  legal  tender  banknotes  to  “metropolitan  France”  is

incompatible with Article 105a(1) of the Treaty according to which only the ECB and the NCBs

may  issue  legal  tender  banknotes  within  the  whole  euro  area.  In  fact,  the  French  franc

banknotes issued (“émis”) by the Banque de France are also legal tender in the  Départements

d’Outre-Mer (which are an integral part of the Community and hence of the euro area), while

they are put into circulation (“mis en circulation”) not by the Banque de France itself but by the

IEDOM  on  behalf  of  the  former.  The  EMI  has  stated,  in  its  Opinion  on  CON/98/09  dated

19 February 1998, that “the IEDOM is not an NCB nor is it vested with the requirements that

the Treaty requires for NCBs..”

- 4 -

Therefore, this arrangement may not be valid anymore after the start of Stage Three. In general,

the tasks assigned to the ESCB in the Treaty and the Statute have to be fulfilled exclusively by

the  ECB  and  the  NCBs.  Other  national  institutions  are  not  subject  to  the  guidelines  and

instructions of the ECB; such ECB acts may be used to establish the regime and the modalities

under  which  banknotes  are  put  in  circulation,  exchanged  and  withdrawn  within  the  euro  area,

and therefore, also eventually within the French  Départements  d’Outre-Mer.  Member  States

cannot,  therefore,  entitle  their  national  central  bank  to  delegate  competencies  in  ESCB-related

tasks to other national institutions without, as a minimum, such delegation being statutorily subject

to a prior approval by the ECB. Such approval, because concerning ESCB- related tasks, may

eventually establish limits and conditions. This should be clearly explicited in the draft law.

The view has been taken by a minority of NCBs, that a permanent delegation of an ESCB task

to any national institution other than the NCB, even if hypothetically subject to a prior approval

by the ECB, would not be compatible with the Treaty and the Statute of the ESCB, which do not

foresee any delegated attribution of ESCB-related tasks outside the ESCB. In this perspective,

the reference in Article 3 of the draft law to “metropolitan” France should be deleted, as well as

any other reference in the French legislation to delegation of ESCB-related tasks to the IEDOM.

9.

Article 4 of the draft law defines the responsibilities of the Monetary Policy Council.  The  EMI

Council  notes  with  satisfaction  that  the  independence  of  its  members  remains  unchanged.

Although the draft law recognises that the Banque de France will have to act in accordance with

guidelines  and  instructions  of  the  ECB,  it  also  states  that  the  Monetary  Policy  Council  shall

“determine” (“détermine”  in  the  French  text)  the  nature  of  collateral.  Along  the  same  lines  as

above, although it is no doubt the intention to be in line with ESCB/ECB Statute requirements on

this  point  and  although  monetary  policy  in  Stage  Three  in  accordance  with  Article  12.1,  third

paragraph,  of  the  ESCB/ECB  Statute  is  expected  to  be  executed  in  a  decentralised  manner

(i.e. by the Banque de France in France), the word “détermine”, to the extent that it conveys the

idea of ample discretion, is inappropriate as such action will fall within the exclusive competence

of  the  governing  bodies  of  the  ECB.  A  more  general  wording  would  be  more  in  line  with  the

Treaty.

10. Additional points raised by several NCBs:

(a)  Article 9  of  the  present  statute  of  the  Banque  de  France  remains  unchanged  and  gives,

inter  alia,  the  right  to  the  Prime  Minister  and  the  Minister  of  Economic  Affairs  and

Finance to attend meetings of the Monetary Policy Council and to propose motions. This is

a  provision  parallel  to  what  is  provided  in  Article  109b(1)  of  the  Treaty  at  Community

level.  However,  De  Nederlandsche  Bank,  Sveriges  Riksbank  and  Suomen  Pankki

consider this formal right as an imperfection requiring re-consideration, because  the right

of Government representatives to propose motions within a NCB decision-making body is

- 5 -

a statutory mechanism to exert national political influence on the performance of ESCB-

related tasks, whereby such tasks are primarily directed towards Community objectives. It

would  therefore  be  appropriate  to  use  this  legislative  reform  to  delete  this  right  from  the

Bank’s statute.

(b)

The Deutsche Bundesbank points out that:

-

-

Article  8,  fourth  paragraph,  provides  for  replacement  terms  of  office  of  less  than

five years which is incompatible with the term of office as laid down in Article 14.2

of the Statute of the ESCB/ECB.

There  are  various  provisions  on  operations  which  fall  within  the  scope  of  Chapter

IV of the ESCB/ECB Statute. Therefore, these operations are subject to guidelines

and instructions of the ECB. They cannot be considered as other tasks as referred

to in Article 14.4 of the Statute of the ESCB. This applies in particular to Article 11,

fourth paragraph, on the allocation of the Bank’s own funds (see Article 25 of the

Statute of the ESCB), Article 15, second paragraph, 17 and 18 on the fiscal agent

function  (see  Article  21  of  the  Statute  of  the  ESCB),  the  holding  of  accounts  for

third  parties  (see  Article  17  of  the  Statute  of  the  ESCB)  and  the  execution  of

foreign  exchange  operations  (see  Article  23  of  the  Statute  of  the  ESCB),

respectively.  Furthermore,  the  General  Council  is  responsible  for  these  operations

according to the draft law, and it does not fulfil the requirements of independence of

the  Treaty  and  of  the  Statute  of  the  ESCB  for  decision-making  bodies  competent

for ESCB-related tasks.

(c) De Nederlandsche Bank considers that the wording of Article 1 whereby the Banque de

France  shall  support  the  general  economic  policy  of  the  Government,  raises  doubts  on

whether,  being  part  of  the  ESCB,  NCBs  will  remain  competent  to  support,  even  as  a

subsidiary objective, national economic policies and will retain instruments for such tasks.

11.

The EMI has no objections to this opinion being made public.

13.3.1998