1.5 Euro – Spain

In 2021, Spain, as a member of the Eurozone, operated under the monetary policy of the European Central Bank (ECB). The national currency was the euro, and Spain had no independent control over interest rates or money supply. The primary monetary context for the year was the ECB's continued aggressive stimulus measures in response to the COVID-19 pandemic. This included a massive €1.85 trillion Pandemic Emergency Purchase Programme (PEPP) and negative interest rates, all aimed at ensuring favorable financing conditions, supporting economic recovery, and guarding against deflationary pressures within the bloc, including Spain.

Domestically, the currency situation was closely tied to Spain's economic rebound from the deep recession of 2020. The injection of euro liquidity from both the ECB and the historic €140 billion allocation from the EU's Next Generation recovery fund helped stabilize the financial system, lower sovereign borrowing costs, and provided crucial support for businesses and households. However, a key concern emerging in 2021 was rising inflation, which began to climb significantly in the latter half of the year, driven by soaring energy prices and supply chain disruptions. This created a policy tension between the need for continued support and the growing pressure on purchasing power.

Overall, Spain's currency environment in 2021 was characterized by stability in the euro's external value and ample liquidity, which facilitated a strong economic recovery. Yet, it was also a transitional year where the focus began to shift from pure pandemic crisis management to navigating the new challenges of surging inflation. Spanish policymakers, while reliant on ECB decisions, debated the domestic impact of these euro-wide policies, particularly as inflation eroded real incomes, setting the stage for the monetary policy tightening that would follow in 2022.