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2 The Central Bank
3 External Link
Origins of the Central Bank
On the independence of the Irish Free State in 1922, the new states' trade was overwhelmingly with the United Kingdom (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 England notes, and notes issued by Irish banks all 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.
Series A (1928-1975) and B (1976-1992) £5 notes
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 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:
At this time, however, an alternative option became available. In April 1978, the European Council meeting in Copenhagen 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 Bremen, Germany 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 Punt.
The initial experience of the EMS was disappointing. It had been expected that the Punt 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 Punt 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 Punt also failed to hold its value against the central rate of the Deutschemark, 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 Punt was devalued by 10%), and Irish inflation was consistently the same or lower than Britain's inflation rate from 1987 onwards.
Towards the Euro
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 Central Bank did not print any 200 or 500 euro notes, but obtained a small stock of those denominations from other European countries.
Central Bank & Financial Services Authority of Ireland