European Central Bank (ECB)
Candlefocus EditorThe European Central Bank (ECB) was established in Frankfurt in 1998 as the central bank for the Eurozone – an economic and monetary union within the European Union. The ECB is responsible for Eurozone monetary policy, which includes setting short-term and long-term interest rates, as well as setting inflation targets for the Eurozone. In setting its policy, the ECB takes into account a range of economic factors, including the performance of the euro area economy, international factors, and the financial and banking sector.
The ECB is responsible for coordinating monetary policy in the Eurozone and controlling the supply of the euro currency in circulation. It accomplishes this primarily through setting interest rates – either by offering loans or purchases of assets – and controlling the ideal amount of euro cash reserves in circulation. The ECB can also act as a banking supervisor, a supervisor of payment systems, and by providing liquidity to support the banking sector.
The ECB is responsible for the implementation of the Eurosystem’s monetary policy, which is set by the ECB’s Governing Council. This Council is comprised of the six executive board members and the head of the national central banks (NCBs) from the 19 participating countries. Decisions on monetary policy are made by the full Governing Council at least once a month.
The Eurosystem, as mentioned, consists of the ECB and all of the participating NCBs. It provides banking services for Eurozone customers, such as accounts and payments, and administers euro cash reserves. The NCB members of the Eurosystem also contribute to the ECB’s policy decisions, as well as providing liquidity to the banking sector in times domestic and international crisis.
The ultimate goal of the ECB and Eurosystem is the continuity and stability of the Eurozone, to ensure that citizens have access to a reliable and trustworthy currency, and to create an environment that allows all member countries to benefit from the euro's wider acceptability. The ECB, through its unique mandate and established functions, is an integral component of the Eurozone and the continent’s overall economic stability.