The European Central Bank, ECB or is responsible for the monetary policy of the European Union. It was founded on June 1, 1998 according to the Treaty of Amsterdam, establishing its headquarters in the German city of Frankfurt. At the moment its president is Mario Draghi, position that will bear, according to the mandate of 8 years anticipated, until the 31 of October of 2019. Headquarters-Bank-Central-European-in-Frankfurt
Objective of the European Central Bank
The primary objective of the European Central Bank is to maintain price stability in the euro area. That is, to control inflation, thus protecting the value of the euro. The ECB states that price growth should not exceed 2% per annum for the euro area as a whole and measured through the HICP (Harmonized Index of Consumer Prices).
In turn, as secondary goals sets the economic growth and job creation. The ECB works to achieve greater financial integration of the eurozone and preserve financial stability, supporting the economic policies of member countries.
The tools used by the European Central Bank to achieve its main objective of controlling inflation are the fixing of the official interest rate of money. There are three tools of monetary policy that the ECB has:
Open market operations: At the official interest rate, liquidity is injected into commercial banks. Main financing operations: to inject liquidity.
- Longer-term financing operations: to inject liquidity.
- Structural operations: both to inject or drain liquidity.
- Adjustment operations: both to inject or drain liquidity.
Permanent facilities: The official interbank interest rate is between these two bands, the interest of the credit facility and the interest of the deposit facility, marking the maximum and the minimum, respectively, of the interbank interest rate to one day.
- Marginal credit facility.
- Ease of deposit.
These commercial banks may use the interbank market to cover their liquidity needs, lending or borrowing (through interbank deposits) to other banks. The price at which this operation is sold is known as the EURIBOR referred to the corresponding term (3 months, 6 months, one year).
Administrative Structure of the ECB
The administrative structure of the ECB is divided into three parts:
- Governing Council: who has the power to decide on monetary policy for the Eurozone? It is composed of the 6 members of the Executive Committee and the governors of the 18 central banks of the states belonging to the Eurozone. Its function is to define the monetary policy for these member states, by setting the interest rates at which commercial banks can obtain money from the Central Bank.
- Executive Committee: composed of the President of the ECB, the Vice-President and four other members. All of them appointed by the European Council, by qualified majority. Its function is to implement the monetary policy defined by the Governing Council and to give the necessary instructions to the national central banks.
- General Council: formed by the president, vice president and governors of the national banks of the 28 member states of the European Union. It is responsible for supporting the ECB in consultation and coordination and assistance in the preparation of the Eurozone enlargement.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.