European Central Bank

The ECB (EUROPEAN CENTRAL BANK)

Plan:

History Structure Objectives Monetary policy strategies

History:

1 June 1998 Treaty on European Union

 (TEU, Treaty of Maastricht)

The first President of the Bank was Wim Duisenberg, the former president of the Dutch central bank and the European Monetary Institute

Headquarters are located in Frankfurt, Germany

Mario Draghi, the current President of the ECB

Wim Duisenberg, first President of the ECB

History:

1 December 2009: the Treaty of Lisbon entered into force, ECB according to

the article 13 of TEU, gained official status of an EU institution.

April 2011: the ECB raised interest rates for the first time since 2008

from 1% to 1.25%

Structure of The ECB

The ECB has three decision-making bodies:

General Council Governing Council Executive Board

Mission Contributes to the ECB's advisory and coordination workHelps prepare for new countries joining the euro

Defines euro zone monetary policyFixes the interest rates

The implementation of monetary policy The day-to-day running of the bank.

Members ECB presidentvice-presidentgovernors of the national central banks of all 28 EU countries

The members of the Executive Board (6 in total) The governors of the National Central Banks of the euro area countries

The President of the BankThe Vice-PresidentFour other members

They are all appointed for non-renewable terms of eight years

The ECB is completely independent. Neither the ECB,

the national central banks in the Euro system, nor any member of their decision-making bodies can

ask for or accept instructions from any other body. All EU institutions and governments must also

respect this principle.

Objectives of The ECB

*Article 127 (treaty of Lisbon): “ The primary objective of the European System of Central

Banks (hereinafter referred to as "the ESCB") shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119 …”

Objectives of The ECB Three Main Objectives:

acceptable inflation rate is below 2% per year.

it is one of the criterias that a country has to meet In order to become a member

the inflation target is the only main goal of the ECB and it is a major source of criticism.

The lesser objective of the ECB is to support the general economic policies in the Euro area

Other tasks of the ECB include: -Conducting foreign exchange operations

-Operating payment systems -Issuing bank notes -Supervising credit institutions.

Monetary Policy of The ECB

Monetary policy

Control inflation Stabilize economic growth

Expansionary Policy Restrictive Policy

More money in the system Reduce money supply Interest Rate Interest Rate

Growth + Inflation Contraction

Monetary Policy Instruments of

The ECB

Open Market Operations: It is an important tool for managing

interest rates, market liquidity, and signaling the next policy movement

Types of operations:

The main refinancing operations The longer-term refinancing

operations Fine-tuning operations Structural operations

Standard Facilities:

Objective : -To provide and absorb overnight liquidity -To signal the general monetary policy stance and bound overnight market interest rates.

Two standing facilities -Marginal lending facility -Deposit facility

Minimum Reserves:

The Governing Council of the ECB has decided to apply minimum reserves as an integral part of the operational framework for the monetary policy in Stage Three.

It Provides stability of money market interest rates.