EUROPEAN CENTRAL BANK
History of ECB
Established on 1. June 1998. by decision made by presidents and
prime ministers of the European Union.
On 1. January 1999. ECB took over all jurisdictions in order to
implement European monetary policy defined by the European
System of Central Banks.
ECB mandate is defined by its independence that was arguable in
some segments during the economic crisis.
HQ is in Frankfurt, Germany.
Together with central banks of 28 EU countries it represents wide
European system of Central Banks (ESCB), resposible for joint
monetary policy for all contries in the Eurozone.
ECB HQ
1.638 employees from 28 EU
countries
European System of Central Banks
Eurosystem
History of ECB
Founding capital 5000 millions:
Registered by member states where each of them 50% of its capital pays in
based on share of their population in total EU population;
Other 50% is related to share of GDP in total EU GDP in the last 5 prior to ESCB
foundation.
ESCB have exclusive right on money emission inside EU.
Eurosystem concept is defined in a way that ECB or national central
banks in the Eurozone would not allow political involvements into
the monetary policy.
European Monetary Union (EMU) started on 1. January 1999. when
Euro was established as an European currency with a fixed
exchange rate for 11 EMU members.
Capital Share of Countries in %
Task and Goals of ECB
Tasks of ECB are:
1. Establisment and implementations of the EU monetary policy;
2. Performing of foreign currency operations;
3. Keeping and managing of member countries foreign curency reserves;
4. Improvement and undisturbed functioning of EU countries payment systems;
5. Contribution to efficiency in policy implementation.
6.
ECB - three main goals:
1. Price stability maintenance as a primary goal;
2. High level of employment;
3. Political independency.
Main Tasks of the Eurosystem
Other Tasks of the Eurosystem
Independency, transparency, and
credibility of ECB
Independency of ECB is basics for maintenance of the price
stability.
ECB, National central banks (NCBs) or members of the bodies in
charge for decision making, can not ask for or get directons from
European institutions, EU bodies or any of the EU state member`s
Government or any other body.
ECB sees transparency as a key factor with an high importance
because:
It helps to a better public understanding which helps in a way that policies are
credible and efficient;
Dedication to transparency helps to the policy creators to be disciplined and
ensures consistency;
Publishing of reports on the regular basis and assessments provide fast
implementation.
ECB-Transparency and
Accountability
ECB-Instruments of the Monetary
Policy
a) Open market operations:
The main financing operations;
Long term operations of re-financing;
Fine tuning operations;
Structural operations.
b)
c) Re-financing operations:
Steering Council defines interest rate that is going to be used in operations of
re-financing;
ECB announces bidding procedure, based on fix or variable interest rate;
Private financial institutions apply for a bidding in order to get a particular
amount of means as an addition to their liquidity.
ECB-Instruments of the Monetary
Policy
Operations on the open market policies are important for:
a) Defining of interest rates;
b) Determination of the monetary policy position;
c) Managing liquidity on the money market.
In order to achieve stance of the monetary policy that is appropriate for a
maintenance of the prices stability in a mid-term, Steering Council first
establishes ECB interest rate.
ECB-Instruments of the Monetary
Policy
a) Regular privileges for crediting:
Crediting privileges for an unplanned situations;
Deposit privileges .
b)
c) Liquidity reserves policy – ECB minimal reserve goals are:
Interest rate stability on the money market;
Controlling of the monetary expansion process.
d)
e) Analytical frame for assessment of all available information and
analysis needed for a monetary policy decisions are based on:
Economic analysis
Monetary analysis
Steering structure of ECB
Steering structure ECB
Executive Board Steering Council General Council
President, Vicepresident President, Vicepresident
4 additional members of 4 additional members of
the Steering Council the Steering Council
Guverners of Eurozone Guverners of EU members
Central Banks Central Banks
ECB President
Christine Lagarde (Governor) and Mario Draghi (ex-Governor)
Financial Stability as a main ECB`s
mandate
Financial stability today represents one of the most researched
areas by the fiancial expers around the World and its importance
raised on the beginning of the financial crisis.
Central banks played the main role with its operations on the
financial markets where the result was mitigation of the dramatic
liquidity risk increases that many banks faced in the summer 2007.
ECB`s and Eurosystem`s main goal is to preserve prices stability.
Eurosystem`s goal is also to preserve stability of the financial
market. Those two goals are connected because, prices stability
influences market stability and provides efficient transmission of
the monetary policy.
Basic measures that CBs applied
during the crisis
Low level interest rate lowering policy.
Increase of financial institutions liquidity.
Direct intervention in financial market wide segment.
Byuing of long term state bonds.
Support to particular institutions.
Unconventional measures of central
banks
Unconventional measures:
1. Policy goal – overall goal is to support prices stability and financial stability;
2. Transmission – communication in transmission of unconventional measures
improves comprehension of functioning of the monetary and fiscal policies and
can be helpful in supporting its efficiency;
3. Transparency – update on regular basis including financial statements, shaping
of exit strategy improves efficiency and responsibility;
4. Protection of balances – CB`s risk management has to be adequate.
CB`s key cathegories during the
crisis:
Key measures of the monetary policy that are undertaken by
central banks during financial crisis can be listed in 5 groups:
1. Interest rate policy;
2. Raise of liquidity of financial institutions;
3. Direct interventions in wider segments of financial market;
4. Purchase of long term state bonds;
5. Support of particular institutions.
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