Abstract
For a year following the launch of the euro, the European Central Bank (ECB) seemed indifferent to the currency's depreciation. Then the ECB changed to a policy position of trying to bolster the external value of the euro. This paper seeks to explain these patterns of positions on the ECB's external monetary policy. I argue that the ECB's policy on the exchange rate is a function of its commitment to domestic price stability in the euro zone. In other words, the ECB's concern with the euro's exchange rate centers solely on what that exchange rate can do to inflation. This focus on price stability is a function of the interests of the ECB in maintaining its own image of competence in European society.
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