European Central Bank

The European Central Bank known by its acronym in English as BCE or ECB is an entity that is mainly responsible for controlling and managing everything related to monetary policy in those areas where the euro has been established as the official currency.

Characteristics of the European Central Bank

It is a bank made up of 19 countries that belong to the European Union , its official currency is the euro and it is in charge of seeking stability in prices in order to safeguard the purchasing power of said currency. It is considered as a supervisory mechanism and its main body is the Governing Council . All the works that the institution does are communicated through the rendering of accounts in a publication that they produce on an annual basis. In addition to taking care of the euro, it is characterized by supervising all banking entities in the area.

Source

This important bank originated and was founded on June 1, 1998 thanks to the Treaty of Amsterdam, Germany.

History

Its history begins in 1998 when the Treaty of the European Union was modified . It was a bank that came to supplant the European Monetary Institute, which was in charge of carrying out procedures related to the adoption of the euro as the official currency of the EU. He managed to exercise for the first time on January 1, 1991 after the euro became official . In this way, the national banks of different states transferred all their political function to the entity. As time went by, other countries decided to join, which increased the reach of the institution.

What is the role of the European Central Bank

Its main function is to keep the purchasing power of the euro constant in order to achieve stable prices in the medium and long term in all those areas where this type of currency is used. It also seeks that the market economy of its member countries remains in good competitiveness so that they can provide employment and generate social good . Defines and executes everything related to monetary policies , performs different types of currency operations , promotes the proper functioning of all payment systemsand helps to properly manage monetary reserves . Finally, it ensures that good cooperation and relationship policies are established and maintained between institutions, bodies and forums within the EU and internationally.

goals

The primary objective of the European Central Bank is to be able to provide greater price stability where the euro is used, in order to keep inflation under control while protecting the value of the euro. This bank is in charge of establishing that prices do not increase more than 2% per year. Other objectives include setting the growth of the economy and the formation of new jobs to improve the economic and social aspect of its inhabitants.

The integration of finance in the European zone and financial stability are also part of its goals and objectives, always being supported by the economic policies of all those countries that are members. It adequately controls inflation through several aspects:

• Open market operations that include inflation operations and long-term financing to increase liquidity , structural operations to drain or increase liquidity, and structural or adjustment operations.
• Cash ratio .
• Permanent type facilities that take care of official interests, credit and deposit facilities, as well as the interest of banks.

How does it work

This bank works properly thanks to its administrative structure which is the following:

• Governing council : this part of the structure is in charge of all kinds of decisions related to politics and currency in the Eurozone. Its main function is to be able to define the best monetary policy for the states that are part of the union by means of the adequate fixation of the interest with which the commercial banks manage to obtain money from the Central Bank.
• Executive committee : its main function is to provide support in consultations and in everything related to coordination.
• General advice : Support the ECB in terms of consultations and help prepare for the enlargement area.

Governing Council of the European Central Bank

It is responsible for guiding and making decisions that can help ensure that the functions that have been assigned are fulfilled by formulating monetary policies, adopting objectives of the same nature and developing new powers to supervise banking institutions. The members of the governing council are:

• Christine Lagarde , President.
• Luis de Guindos , Vice President.
• Fabio Panneta , Yves Mersh , Isabel Schnabel and Philip R. Lane as executive members.

Type of interest

The interest rates of this bank can be grouped into three different groups. The first of them is that of deposits , which is related to the remuneration of the deposits that are made by commercial banks and financial institutions. A second group of interest includes the refinancing rate that is given to commercial banks and a last interest is applied to discounts , also known as marginal credit , this is higher and can only be used in cases of emergency.

Where is the headquarters of the European Central Bank

Its headquarters are located in Frankfurt am Main , a city in Germany .

critics

Over time, several criticisms have arisen against the European Central Bank, some of them are:

• Its inflation rate of 1.5% has been criticized as bankers consider that this measure affects the primary definition of price stability.
• The deposit facility interest rate has received negative criticism for years as the ultra-expansive policy that the bank defends due to the threats of deflation has not been proven.
• Many experts consider that the institution tries to give protection to governments that have large amounts of money as debt.
• It has also been criticized that the ECB has ventured into monetary financing related to the economic spending of governments, a situation that is prohibited by the Treaty of the European Union.

Importance

The European Central Bank is undoubtedly one of the most important institutions in the economy and the financial system of the entire world. It is a bank that responds to a large number of requests from countries for international cooperation and also promotes and provides the exchange of knowledge and good practices to increase banking capacity. Its relevance is also in its power to achieve closer banking relations with other countries that do not belong to the EU, thus improving economic stability.and prices worldwide. It is an entity that also has in its hands the realization of different types of operations related to currency exchanges , with the promotion of an adequate operation in the security , payment and management systems of all the reservations in the places where the euro is official currency.