Home » Blog » Twenty-five years of the euro: How the introduction of the single currency changed the conduct of monetary policy and payment and securities settlement systems in the euro area

Twenty-five years of the euro: How the introduction of the single currency changed the conduct of monetary policy and payment and securities settlement systems in the euro area

The “test” Belgium had to pass to be admitted to the monetary union with a single currency included conditions related to the exchange and interest rates applicable to the Belgian franc (BEF) in the years prior to the creation of the euro. These were policy areas of the National Bank, whose implementation fell to the Bank’s Financial Markets Department. Payment and securities settlement systems, which also fall under this department’s remit, then had to be adapted in turn in preparation for the introduction of the single currency.

Monetary and exchange rate policy

Until 31 December 1998, Belgium had its own currency, the Belgian franc, issued by the National Bank of Belgium (NBB). The NBB ensured the currency’s stability through an appropriate monetary and exchange rate policy. Within the Bank, the Financial Markets Department implemented this policy by carrying out foreign exchange transactions (buying and selling Belgian francs, usually against Deutsche marks (DEM) or US dollars (USD)) and transactions on the BEF money market (lending to or borrowing from banks).

Preparation for the introduction of the single currency

The transition to the single currency - the euro – took place in stages. In March 1990, for instance, the - already meaningless in practice but still existing - dual exchange rate system was abolished. Under this system, there was a “free market” for capital transactions and a “regulated market” for all other types of transactions, and on these two markets the rates could slightly differ.

Subsequently, in May 1990, the Belgian franc was pegged to the German mark, the currency of our main trading partner and the strongest currency in the European Monetary System (EMS). In the years prior thereto - the 1980s - the Belgian franc formed part of the EMS. Under that exchange rate agreement, the margin for fluctuation between European currencies was +/- 2.25%. Once pegged to the German mark, the Belgian franc was subject to a much smaller margin of fluctuation with the mark, overseen by the NBB’s Financial Markets Department. In short, the NBB’s monetary policy was in practice aligned with that of the Bundesbank.

On 29 January 1991, the Bank made the switch to a market-based monetary policy. While short-term interest rates had previously been set jointly by the NBB and the Ministry of Finance, the NBB now steered short-term interest rates through money market transactions carried out by its trading room.

After the introduction of the euro

On 1 January 1999, the Belgian franc was replaced by the euro, at a central rate of BEF 20.6255 to DEM 1. This worked out to BEF 40.3399 per euro. Since then, the NBB’s Financial Markets Department - together with the 19 other euro area central banks - has been implementing the Eurosystem’s monetary policy: ensuring the provision of liquidity to commercial banks through collateralised refinancing operations, the marginal lending and deposit facilities and, in recent years, asset purchase programmes.

Management of reserves

Before the introduction of the euro, exchange market intervention to stabilise the Belgian franc was quite common. After the changeover, however, this practice essentially disappeared in the absence of an exchange rate target for the euro against the US dollar and Japanese yen. One consequence of this was that the liquidity of the Bank’s dollar- and euro-denominated portfolios became a less important issue. This made it possible to diversify bond holdings and build up held-to-maturity portfolios.

Payment systems

The introduction of the euro significantly simplified the circulation of money and securities within the European Union.

For payments both within and outside Belgium, TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System), also known as T2, is used. This is the leading European platform for the processing of large-value euro payments in real time by both central banks and commercial banks. Its predecessor, TARGET, was launched in 1999, together with the introduction of the euro. More than 1 700 banks use TARGET2 to carry out euro transactions for themselves and their customers. With the inclusion of branches and subsidiaries, the platform is used by over 55 000 banks (and their customers) worldwide.

Securities settlement

In 2015, the counterpart of TARGET2 for securities settlement made its debut on the European scene: Target2-Securities (T2S). All European central securities depositories (CSDs), the entities responsible for managing securities, have been linked through T2S since 2016. One of the CSDs in Belgium is the NBB Securities Settlement System (NBB-SSS), the CSD within the Bank that enables the processing of transactions in bonds.

CSDs connected to T2S outsource to the central platform a number of important tasks, such as the matching (i.e., pairing buy and sell orders to make trades) and settlement of orders.


The development of the pan-European T2 and T2S platforms was a major challenge, one that would have been even more complex had it not been for the euro. Can you imagine having to manage 20 cash accounts denominated in 20 different currencies or having to pay for a German bond with Italian lira? Thanks to T2 and T2S and the single currency, there are no longer any financial borders within the European Union.

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