Independence and prohibition on monetary financing

Central bank independence

The independence of the National Bank of Belgium (the “NBB”) as a central bank covers various aspects, namely functional, institutional, personal and financial independence. In recent years, these aspects of independence within the European System of Central Banks (the “ESCB”) have been developed in opinions of the European Central Bank (the “ECB”).

First, the NBB enjoys functional independence with a view to the primary objective of price stability as defined in the Treaty on the Functioning of the European Union (the “TFEU”). For that purpose, the NBB has the necessary resources and tools to achieve that objective within the ESCB, independently of any other national authority.

Its institutional independence is enshrined in Article 130 TEU. That provision stipulates that, in the performance of its tasks as a national central bank in the ESCB, the NBB, as an institution, cannot be influenced by other institutions, namely those forming part of the European, national or regional executive authority.

As the NBB’s decision-making body, the Board of Directors is responsible for the performance of its tasks relating to the ESCB. The Council of Regency and the Board of Censors do not intervene in the performance of those tasks, or in the decisions concerning those tasks. They therefore cannot be considered as decision-making bodies within the meaning of Article 130 TFEU.

The personal independence applies to the NBB’s Governor and its directors. That principle is likewise enshrined in European legislation and further developed in the NBB’s legal framework. As a result, members of the board are appointed by the King for a (minimum) fixed term, they can only be removed from office in exceptional circumstances, and such a dismissal can be contested in the courts. The NBB’s Organic Law, its statutes and its code of ethics also provide the necessary safeguards to avoid conflicts of interest, including certain incompatibilities as regards political mandates and functions in private enterprises.

In the case of the regents and censors, the personal independence principle enshrined in European law does not apply. However, the NBB’s legal framework imposes certain rules on them, too, concerning incompatibilities and conflicts of interest.

The financial independence means that the NBB must have totally autonomous access to sufficient financial resources to fulfil its mandate. In that connection, the NBB’s decision-making bodies, and particularly the Board of Directors and the Council of Regency, have far-reaching autonomous powers over the budget, accounting rules and profit distribution. 

The prohibition on monetary financing

To ensure that the primary aim of monetary policy (namely the maintenance of price stability) is safeguarded and to prevent monetary policy from hampering budgetary discipline, an ECB central bank cannot use its monetary policy instruments for the purpose of funding public authorities. That prohibition on monetary financing is enshrined in European legislation, in Article 123 (1) TFEU.

Consequently, the NBB cannot finance the public sector or the public sector’s commitments to third parties. If the NBB is assigned new tasks which the ECB does not class as central bank activities but which must be considered public tasks, it therefore has to receive full, appropriate remuneration for them.

Some of the NBB’s tasks which do not concern monetary policy, such as the supervision and resolution of financial sector institutions, and the NBB’s tasks as State Cashier, are regarded as central bank activities by the ECB and are not subject to the prohibition on monetary financing. Worth noting in that connection is that, since the entry into force of the single supervisory mechanism, the ECB also acts as a bank supervisory authority.

Furthermore, the prohibition on monetary financing does not concern the rules on the distribution of central bank profits. One of a central bank’s characteristics is that, to some extent, its surplus income in excess of its expenditure accrues to its sovereign State (to find out more, click on this link). The system of distribution applicable to profits made by the NBB likewise specifies that the balance of the profits is paid to the Belgian State, after the formation of reserves and distribution of dividends.