European Central Bank (ECB)
The European Central Bank (ECB) was established on 1 June 1998 and has its headquarters in Frankfurt am Main. It represents the central bank for the 19 member states of the European Union that have adopted the euro as their currency. Together with the national central banks of the EU countries, the European Central Bank also forms the European System of Central Banks. The primary objective of the ECB is to ensure price stability within the euro area, thereby maintaining the purchasing power of the euro. Learn here how the ECB was founded and what tasks it is responsible for.
Background of the ECB
Generally speaking, a central bank is an institution responsible for regulating the money supply and supervising the banking system of an economy.
A central bank is therefore not an ordinary bank, but a body designed to manage a country's monetary policy. This is precisely the task that the European Central Bank performs in the Eurozone.
European integration resulted in some states choosing to introduce a single currency – specifically, the Euro. The creation of this single currency naturally also required certain conditions to be established for a unified monetary policy.
Therefore, the European System of Central Banks was established. The ECB handles the majority of the tasks here.
Tasks of the ECB
As previously mentioned, maintaining price stability is one of the ECB's primary goals. Large fluctuations in the value of money should therefore be prevented – this can be measured by the so-called inflation rate.
In addition, the ECB is designed to ensure that the economic development of the associated countries is balanced, in order to avoid a recession.
To achieve these goals, the ECB changes the price of borrowed money (raising or lowering the key interest rate).
All the main tasks can be found in Art. 127 Para. 2 of the TFEU:
Monitoring and implementation of monetary policy
Foreign exchange operations
Management of the official foreign reserves of each member state
Supplying the economy with money, primarily to promote the smooth operation of payment systems
These tasks are carried out by the various bodies of the ECB. Furthermore, the ECB has other responsibilities, such as supervising credit institutions and advisory roles for national authorities.
Composition of the ECB
The President of the ECB, Christine Lagarde, has the task of representing the bank at EU meetings or on an international level.
In addition, there are three decision-making bodies within the ECB:
The Governing Council consists of the respective presidents of the national central banks and the members of the Executive Board. Among other things, the Governing Council defines the monetary policy of the Eurozone and is also responsible for banking supervision. These and other important tasks make the Governing Council the most important decision-making body.
The Executive Board is responsible for managing the day-to-day business of the ECB. This includes preparing meetings of the Governing Council and implementing monetary policy. This body comprises the current President, the Vice-President, and four other members. They are appointed by the heads of state or government of the respective countries – for a non-renewable term of eight years.
The tasks of the General Council, on the other hand, are of a more advisory and coordinating nature. This includes the collection of statistical data and the preparation of annual reports. The President, the Vice-President, and the respective presidents of the national central banks of all EU member states are members of the General Council.
In addition to the decision-making bodies, there is also a Supervisory Board that operates internally. It handles the planning and execution of the supervisory tasks assigned to the ECB, such as licensing credit institutions or withdrawing licences.