History - the BIS as a forum for European monetary cooperation (1947-93)

Restoring multilateral payments and currency convertibility in Europe

Regular BIS Board meetings resumed in December 1946. In the aftermath of World War II, Europe's priority was stabilising the different national currencies before trade and foreign exchange restrictions could be gradually lifted.

When the Benelux countries, France and Italy concluded a first Agreement on Multilateral Monetary Compensation in November 1947, they turned to the BIS to act as the technical agent for this scheme. In September 1950, 18 European countries set up a European Payments Union (EPU) and appointed the BIS as its agent.

The goal of the EPU was to restore the free convertibility of European currencies in line with the Bretton Woods agreements. To achieve this, each country reported its bilateral trade deficits or surpluses with each of the other participating countries to the BIS on a monthly basis. The BIS then calculated the aggregate deficit or surplus of each country vis-à-vis the EPU as a whole. Initially, these deficits and surpluses did not have to be settled immediately, but were instead largely converted into debits and credits vis-à-vis the EPU. In that way, intra-European multilateral trade could be restored without putting undue pressure on the participating countries' currency positions and reserves. With time, the ratio of debits and credits granted by the EPU was gradually reduced. By the end of 1958, the EPU's goal was reached: European currencies achieved full current account convertibility, and the Union was dissolved.

The BIS and the origins of European monetary union 

In the 1960s, the BIS became involved in an entirely new chapter in European monetary cooperation. The 1958 Treaty of Rome, which created the European Economic Community (EEC), had called for closer coordination of monetary policies between the EEC member states. This was followed in 1964 by an EEC Council decision to create the Committee of the Governors of the Central Banks of the Member States of the European Economic Community ("Committee of Governors"). While the EEC Commission had wanted to see this committee based in Brussels, the Governors decided that it should meet at the BIS in Basel, as they were already meeting there regularly for the BIS Board meetings.

From 1964 until its dissolution at the end of 1993, the Committee of Governors met at the BIS, which also provided its secretariat. The European Monetary Cooperation Fund (1973) and the European Monetary System (1979) were operated from Basel, with the BIS providing the necessary technical support. In 1988-89 the Committee for the Study of Economic and Monetary Union, chaired by European Commission President Jacques Delors, convened in Basel and laid the technical groundwork for the European Council's decision to move towards full European monetary union, as approved by the 1992 Treaty of Maastricht.

With the implementation of the first phase of monetary union at the end of 1993, the Committee of Governors was replaced by the European Monetary Institute (EMI), which then moved from Basel to Frankfurt. In 1997, the EMI became the European Central Bank.

See also