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The Central Bank and Financial Services Authority of Ireland ( ) is the financial services regulator of Irelandmarker and historically the central bank. The bank was the issuer of Irish pound banknotes and coinage until the introduction of the euro currency, and now provides this service for the European Central Bankmarker.

The bank was founded as the Central Bank of Ireland (Banc Ceannais na hÉireann in Irish) in 1943 and since January 1, 1972 has been the banker of the Irish Government in accordance with the Central Bank Act, 1971, which can be seen in legislative terms as completing the long transition from a currency board to a fully functional central bank.

The bank's head office is located on Dame Streetmarker, Dublinmarker, where the public may exchange non-current Irish coinage and currency (both pre- and post-decimalization) for euros. The Currency Centre at Sandyfordmarker is the currency manufacture, warehouse and distribution site of the bank.

Functions

After the enactment of the Central Bank and Financial Services Authority of Ireland Act 2003, the previously unitary organizational structure was split, with a semi-autonomous entity established for financial regulation (now embracing all financial servcies and not just banking), emphasizing consumer protection.

The Central Bank

Dame Street, Dublin; the location of head office
The Central Bank manages Irish monetary policy as part of the European System of Central Banks, and is the Irish Government's banker. Since European Monetary Union, it exercises much of its functions in this regard in conjunction with the European Central Bankmarker and the other Eurozone central banks.

The Financial Regulator

Quality and Cost of Services Concerns


In 2003 a new separate division of the Central Bank, with its own Chairman, Chief Executive, and board, was established as the Irish Financial Services Regulatory Authority. This was as a compromise between those who favoured a fully independent regulator and those who believed the Central Bank should maintain full control of regulation of the financial services industry. This division of the Bank has regulated all financial institutions (including insurance undertakings, collective investment funds and credit unions) in Ireland.

Under the 2003 arrangements the Central Bank provides the Financial Regulator with services. The Regulator’s industry panel, which provides the Regulator with feedback on its charges and policies said in April 2007 that they had ‘‘major concerns with the quality and cost of the services’’ provided to the Regulator by the Central Bank..

Following the banking collapse of 2008-9, the Government announced its intention to re-unify the organization under a Central Bank of Ireland Commission to replace the current board structure of the Central Bank and the Financial Services Regulatory Authority.

History

On the independence of the Irish Free State in 1922, the new state's trade was overwhelmingly with the United Kingdommarker (98% of Irish exports and 80% of imports in 1924), so the introduction of an independent currency was a low priority. British banknotes (British Treasury notes, Bank of Englandmarker notes), and notes issued by Irish banks circulated (but only the first were legal tender) and coins remained in circulation.

Under the terms of the Coinage Act 1926, the Finance Minister was authorised to issue coins of silver, nickel, and bronze of the same denominations as the British coins already in circulation - however the Irish silver coins were to contain 75% silver as compared to the 50% silver coins issued by Britain at the time. These coins entered circulation on 12 December 1928.

Under the terms of the Currency Act 1927, a new unit of currency, the Saorstát Pound (Free State Pound) was created, which was to be maintained at parity with the British Pound Sterling by a Currency Commission which would keep British government securities, sterling cash, and gold to keep a 1-1 relationship.

The Central Bank

The Bank of Ireland


The Central Bank Act 1942 which came into effect on 1 February 1943 renamed the Currency Commission the Central Bank of Ireland, although the organisation did not at that time acquire many of the characteristics of a central bank:
  • it was not given custody of the cash reserves of the commercial banks
  • it had no statutory power to restrict credit, though it could promote it
  • the Bank of Ireland remained the government's banker
  • the conditions for influencing credit through open-market operations did not yet exist
  • Ireland's external monetary reserves were largely held as external assets of the commercial banks


This seriously limited the banks' ability to run an independent monetary policy. The Central Bank broadened its activities over the decades, but it remained in effect a currency board until the 1970s.

Decimalisation

The 1970s were a decade of change, which began with the decimalisation of the currency which came into effect on 15 February 1971, when the decimal coinage was released into circulation (although 5p, 10p, and 50p coins were released a few years earlier, as they had exact equivalents in old currency units). Decimalisation would have provided an ideal opportunity to break the link with Sterling, but there was not much demand for this at that time. In 1972 however, the Bretton Woods systemmarker of fixed exchange rates broke down, and in the wake of the 1973 oil crisis inflation in Britain increased dramatically, and economic theory would suggest that a smaller economy whose currency is pegged to a larger one will suffer the larger economy's inflation rate. At the same time moves to create a money market in Dublinmarker and the transfer in 1968 of the commercial banks' sterling assets to the Central Bank made it possible to contemplate a break in the link. In the mid to late 1970s, opinion within the bank was moving toward breaking the link with sterling and devaluing the Irish currency in order to limit inflationary effects from abroad.

At this time, however, an alternative option became available. In April 1978, the European Council meeting in Copenhagenmarker decided to create a "zone of monetary stability" in Europe, and European Economic Community institutions were invited to consider how to create such a zone. At the following Council meeting in Bremenmarker, Germanymarker in June 1978 the basic features of the European Monetary System were outlined, including the creation of the ECU - European Currency Unit, a basket of the Community's currencies used to determine exchange rates, and the forerunner of the euro.

The European Monetary System

The Irish government had to decide whether or not to participate in the EMS. If the EMS had included all the European Community's currencies, it would have provided stability for 75% of Ireland's external trade, but in the event Britain, which still accounted for 50% of Ireland's external trade, decided to stay out of the EMS. Despite this, on 15 December 1978 it was announced that Ireland would participate in the EMS. Countries were given the option of either a 2.25% or 6% margin of fluctuation within the EMS' Exchange Rate Mechanism (ERM), and Ireland took the narrower margin. The EMS started on 13 March 1979, and towards the end of the month Sterling started to gain in value against the EMS currencies because of rising oil prices, and by 30 March Sterling breached the upper fluctuation band limit of the Belgian franc and the Irish currency could no longer track Sterling. After over 50 years, the parity of the Irish and British currencies was broken, and the Irish currency became known as the Irish pound (or Punt).

The initial experience of the EMS was disappointing. It had been expected that the Irish Pound would appreciate in value against Sterling, and hence reduce inflation in Ireland, but in practice Sterling appreciated considerably in value thanks to its status as a petrocurrency and to the tight monetary policies of the new British government of Margaret Thatcher. By late 1980 the Irish Pound had fallen in value to less than 80 British pence, and Irish inflation was higher than British. Economic policy in Ireland was inconsistent with a "hard currency" policy, and the Irish Pound also failed to hold its value against the central rate of the Deutschmark, although it did appreciate in value against some of the other EMS currencies.

Eventually the EMS settled down (notwithstanding a crisis in 1992 when the Irish Pound was devalued by 10%), and Irish inflation was consistently the same or lower than Britain's inflation rate from 1987 onwards.

Towards the Euro

Irish €1 coin
The idea of a single European currency goes back to the Schumann Plan of 1950. The first blueprint for how to go about implementing the currency, the Werner Report of 1970 was not proceeded with, but the ultimate aim was always kept in mind. The Delors Report endorsed by the Madrid Summit of June 1989 envisaged a three-stage process to monetary union, and this was given legal authority by the Maastricht Treaty of 1992 (enacted into Irish law as the Eleventh Amendment to the Constitution of Ireland by 70% of those voting in a referendum on 18 June 1992). This envisaged the start of monetary union on 1 January 1999 and the introduction of notes and coins on 1 January 2002.The Central Bank began production of euro coins in September 1999, producing over a billion coins, weighing about 5,000 tons, with a value of 230 million euro before the introduction into circulation of the euro coins in January 2002. Production of euro banknotes began in June 2000, with 300 million notes worth 4 billion euro being produced in denominations of 5, 10, 20, 50, and 100 euro. Euro banknotes produced for the Central Bank are identified by having the serial number begin with the letter T. The Bank did not initially issue €200 or €500 euro banknotes, but has since begun to do so.

Failure to prevent banking pressures resulting from property bubble

"Healthy Asset Quality"
Despite growing evidence of an unsustainable property price and construction bubble during the mid-2000s, corrective regulatory action was delayed and timid. After the bubble burst, Irish banks faced mounting losses on a scale which exposed them to a collapse of confidence following the Lehman's bankruptcy in September 2008; they then suffered acute liquidity pressures which had to be met by Central Bank support, including emergency lending. Management abuses, which had not been restrained by the Regulator, were also revealed at Anglo Irish Bank, which had to be nationalised in January 2009.

Their Annual Report, which was published just three months before the Government was forced to unconditionally guarantee the deposits of the Irish-owned banks,said: "The banks have negligible exposure to the sub-prime sector and they remain relatively healthy by the standard measures of capital, profitability and asset quality. This has been confirmed by the stress testing exercises we have carried out with the banks".

The next Annual Report had virtually nothing to say about how and why the Irish banking system was brought to the brink of collapse. Although there were four Central Bank directors on the board of the Financial Regulator, the Central Bank maintained it had no powers to intervene in the market. Yet, the Central Bank had the power to issue directives to the Financial Regulator if it thought it was conducting its business in a way that was contrary to overall Central Bank policy aims. None were issued.

In July 2009, a senior Central Bank official told the Oireachtas Enterprise Committee that shareholders (later corrected/clarified to refer to institutional investors) who lost their money in the banking collapse were to blame for their fate and got what was coming to them for not keeping bank chiefs in check. The official did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developers.

List of Governors of the Bank

The Governor (Irish An Gobharnóir) of the Bank is appointed by the President of Ireland on advice of the Irish Government.

  • Joseph Brennan (1887-1963; Governor 1943-53)
  • J.J. McElligott (Governor 1953-60)
  • Maurice Gerard Moynihan (1902-99; Governor 1960-69)
  • T.K. Whitaker (1916- ;Governor 1969-76)
  • Charles Henry (C.H.) Murray (Governor 1976-81)
  • Tomás F. Ó Cofaigh (Governor 1981-87)
  • Maurice F. Doyle (1922-2009; Governor 1987-94)
  • Muiris S. Ó Conaill (Maurice O'Connell[45186]) (Governor 1994-2002)
  • John Hurley (Governor 2002-2009)
  • Patrick Honohan (Governor September 2009-To date)


See also



References

External links




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