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Foreign Exchange for Expats in Spain

Submitted: July 2013

Spain’s official currency is the Euro (EUR). The European Central Bank (ECB) is responsible for monetary policy, and it is an autonomous institution.

The Euro-zone has never imposed exchange controls since the introduction of the euro. There are no restrictions as to the holding of foreign currency in Spain, and non-euro investments are available in Spain.

 

Exchange rate regime

The Euro is a freely floating currency, and it challenges the US dollar as a world currency. Many other currencies are pegged or somewhat connected to the Euro. These include notably Denmark, Morocco, most Eastern European countries, and most French-speaking Sub-Saharan countries.

 

Monetary policy

As per article 127(1) of the Treaty on the Functioning of the European Union (TFEU), the ECB’s primary mandate is to maintain price stability. Without prejudice to this objective, the ECB must also support the EU’s general economic policies.

Inflation-targeting and forward guidance lie at the heart of the ECB’s commitment to price stability. The ECB targets an inflation rate below but close to 2%, where the relevant inflation rate is the Euro-zone Harmonised Index of Consumer Prices (HICP).

Over the recent years, the ECB has failed to keep inflation in check while adopting an ultra-dovish monetary policy aimed at supporting growth. Average inflation since 1999 has been at 2.1%, which is slightly above target. In 2013, the ECB has held fire and allowed inflation to dip below 1.5%. In June 2013, the ECB has said that its inflation expectations are 1.3% for 2013 and 1.4% for 2014.

Although the ECB hasn’t necessarily been far-reaching in this area since the 2008 crisis, you should be wary of negative real interest rates. See Investment for Expats in Spain.

Dovish monetary policy is in line with the current international trend. As a result, the euro exchange rate is not necessarily affected, especially if you come from another country with a dovish monetary policy. You might wish to check how the ECB’s policy interacts with that of your home country, as well as how the markets price this.

 

Euro-zone crisis and FX considerations for Spanish residents

There is growing concern about a Spanish exit from the Euro-zone, although it is not an absolute certainty either. Regarding foreign exchange matters, potential effects include:

For money transfer considerations, see Money Transfer for Expats in Spain.

 

 




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