The Central European Bank is the central bank of the European Union and the Eurozone. It is known as the most independent bank in the world. It is this financial institution that has every right to independently resolve any issues related to the euro. The institution was founded in 1998. The first president of the financial institution was Wim Duisenberg, who was elected for a term of 5 years. In October 2003, Jean-Claude Trichet took over as president. Today, the leading position belongs to Mario Draghi.
History
After the end of World War II, the unification of Europe began. Structuring was activated and the formation of a single market space began. In the period from 1947 to 1957, the period of integration of the states of the region with the parallel emergence of the European Payment Union was successfully passed. In 1957, the largest European states merged into the European Economic Community. In 1979, conditional money was introduced into the EEC - ECU - to make payments that were immediately tied to a basket of European currencies. The memorandum on the formation of the European currency space and the ECB was signed in 1988. CB Central European Bank LLC appeared after the signing of an international treaty on the creation of the EU in 1992 on the territory of Maahstricht, as well as after the formation of the European Monetary Institute, which was responsible for preparing for the transition to a single currency - the euro.
External and internal structures
The Central European Bank has a unique management team. It includes representatives of each of the EU member states. Issues related to the work of a financial institution, discount rate, bills and other issues are specified by the institution’s management and the board of governors. The management consists of 6 people, with the chairman of the bank and his deputy inclusive. The governing body is chosen on an eight-year term. Candidates for a place in the directorate are nominated and considered by the European Parliament and the leaders of the states that are part of the European zone. The ECB is a member of the European System of Central Banks, which includes the national Central Bank of the EU countries. The international system operates on a two-level algorithm. Any issue regarding monetary policy can be resolved only if agreement is reached at each level.
General information
Since its inception in Germany, Frankfurt, the Central European Bank has united under its leadership a whole system of European central banks. The structure includes:
- Bank of Belgium.
- Bundesbank.
- Bank of Greece.
- Bank of Spain.
- Bank of France
- Monetary Institute of Luxembourg.
Only the ECB has the status of a legal entity, all other financial institutions included in the system play the role of auxiliary units. Their tasks are secondary. The main goal of the ECB is to prevent a sharp rise in prices and stabilize the level of inflation, which should not exceed 2%. Any decisions and actions of the bank directly affect the exchange rate of the European currency in relation to other currencies of the world. Sharp fluctuations cause a change in interest rates and the provision of credit to member states.
What does the ECB do?
The Central European Bank simultaneously performs several dominant functions:
- Development and implementation of monetary policy in the euro area.
- Provision, development and disposal of exchange reserves of states from the euro area of an official nature.
- Euro emission.
- Setting interest rates.
- Ensuring price stability in the European zone.
ECB indicators are the price index for consumer goods throughout the EU and the size of the money supply, the growth of which during the year should not be more than 4.5%.
Bank interest rates
The functions of the European Central Bank cover the determination and setting of interest rates. Interest rates can be of three types:
- Refinancing rate. This is the interest rate that determines the minimum value for applications for attracting material resources in a tender held by the ECB.
- Deposit rate. This is the interest rate, which is the base when placing free cash in ECB institutions. The rate acts as the lower limit in the overnight interest rate market.
- The marginal lending rate is the rate at which banks in the structure of the ESB can get a loan, which is necessary to maintain short-term liquidity. The marginal rate plays the role of the upper limit of the range within the overnight interest rate market.
By setting these types of rates, the Central European Bank forms the demand or supply of currency, ensures its stability and controls cash flows within the zone.
General Provisions
The Central European Bank is a unique legal entity whose work is based on international agreements. The authorized capital of the institution at the time of its establishment was equal to 5 billion euros. The largest European banks acted as shareholders. The German Bundesbank contributed 18.9% of the capital, the Bank of France - 14.2%, the Bank of Italy - 12.5%, the Bank of Spain - 8.3%. The remaining Central Banks of European countries contributed from 0.1% to 3.9% of the initial authorized capital. The financial institution is governed by the executive board, which was mentioned above, headed by the chairman of the European Central Bank. The main feature of a financial organization is complete independence. At the same time, the institute is obliged to submit a report on its activities to the European Parliament, the European Commission, the Council of the European Union and the Council of Europe every year .
Business policy
To achieve its objectives, the ECB uses such instruments as stabilization loans and collateral auctions, foreign exchange transactions and transactions in open markets. The most powerful financial market regulation tool is the rate of the European Central Bank. The work of the monetary institution is based on the principles of independence from other states, as well as from regulatory bodies of a supranational type. The work of the latter primarily provides for the absence of coercion in blocking external debt and internal. To make a decision on each specific decision, a majority of the members of the management council must vote for it. Each of them has only one opportunity to vote. The head of the European Central Bank should follow the opinion of the council. Only after a certain decision is made, central banks of European states can be actively involved in its implementation.
Powers of the ECB and National Central Banks
The ECB, with joint efforts with the Central Bank of the member states of the association, has the right to form relations with the Central Bank of other states, and, if necessary, with international organizations. Opportunities are open for the acquisition, sale and forward of any type of asset, including bank metals. The concept of “currency assets” includes securities in any currency and in any units of calculation. Allowed ownership and asset management. The ECB conducts a wide range of banking organizations of any type, as partners in which international organizations, representatives of a third party can act. Partnerships may include borrowing and lending. In addition to the main functions mentioned above, the European Bank, in cooperation with the Central Bank of Europe, can carry out operations with an administrative purpose, as well as act in the interests of board members. An important stage in the decree of the bank's activities can be called the formation of the European currency system, which began its existence in 1979.
European Monetary System under the ECB
The refinancing rate of the European Central Bank is not the only thing that affects the European currency system. EMU itself has a number of specific tasks. We can talk about the following areas:
- Ensuring currency stability within the EU.
- Maximum simplification of convergence processes with active economic development.
- In conditions of stability, the monetary system provides a growth strategy.
- Stable systematization of foreign exchange and economic relations of an international nature.
Thanks to the introduction of such a monetary unit as the ECU, the European Union states successfully coped with the crisis of the 80s. After defeating the inflation process, restrictions on current financial transactions were lifted. Since 1990, the free flow of capital regime has been activated. The initial goal of the EU was to provide optimal conditions for the movement of goods and services, capital and labor. The ECB was created with the aim of stimulating the introduction of a common currency, common citizenship. His work at the planning stage was supposed to help form the organizational and legal mechanisms for the coordination of not only foreign policy, but also the security policy of each member state.