Ernst von Freyberg replaces Ettore Gotti Tedeschi, who was unceremoniously sacked by the board on May 24 last year a day after the pope's butler was arrested for leaking hundreds of confidential papers from the Vatican.
Vatican watchers say Gotti Tedeschi's ousting could have been linked to his drive to make the bank, the Institute for Religious Works, cooperate with an Italian money laundering inquiry but the circumstances remain mysterious.
Von Freyberg, a trained lawyer, is chairman of the Blohm + Voss shipyard in Hamburg in northern Germany and an active member of the Knights of Malta, a lay religious order founded in the Middle Ages.
From 1991 until 2012 he was chief executive of Frankfurt-based Daiwa Corporate Advisory, a consultancy mainly for financial institutions.
"This decision is the result of extensive evaluation and a series of interviews that the Commission of Cardinals has conducted, with the constant support of the Supervisory Board," the Vatican said in a statement.
"The Holy Father has closely followed the entire selection," it said. The Vatican is trying to implement reforms to put it on an international "white list" of countries that comply with legislation to combat money laundering after a critical report from the Council of Europe last year.
"There is a clear willingness to proceed. The new president is absolutely aware of this," Vatican spokesman Federico Lombardi told reporters.
The report from Moneyval, the Council of Europe's anti-money laundering body in Strasbourg, scored unsatisfactory ratings for the Vatican in seven out of 16 "key recommendations" and satisfactory ratings in nine.
The report noted that the foundations for a more transparent financial system in the tiny Vatican state "are now formally in place," adding: "The Holy See has come a long way in a very short period of time."
"But further important issues still need addressing in order to demonstrate that a fully effective regime has been instituted in practice," it added.
In particular, the report "strongly recommended" that the Vatican's bank, the Institute for Religious Works (IOR), "is independently supervised."
The bank is currently supervised by a committee of cardinals. The Vatican has since appointed Swiss lawyer Rene Bruelhart, who helped Liechtenstein shed its shady reputation, to be executive director at its Financial Information Authority (FIA), which Moneyval had criticised for light oversight.
The FIA is still headed up by Italian cardinal Attilio Nicora. The Vatican bank has a troubled history including in the 1970s and 1980s with the collapse of the Banco Ambrosiano, where the Holy See was the main shareholder, which was accused of laundering money for the Sicilian mafia.
The chairman of Banco Ambrosiano, Roberto Calvi -- dubbed "God's Banker" in the press -- was found hanging from Blackfriars Bridge in London in 1982 in a suspected murder by mobsters for which no-one has ever been convicted.