European Central Bank - Explained
What is the ECB?
Written by J. Mance Gordon
Updated at April 17th, 2022
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What is the European Central Bank?
The European Central Bank (ECB) is the bank of European Union (EU) which sets and oversees monetary policy of the states which have adopted euro as national currency. The European Central Bank (ECB) has 19 members and all states are geographically located in Eurozone. The main purpose of European Central Bank (ECB) is to maintain economic stability and purchasing power of the region.
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How Does the European Central Bank Work?
The headquarters of European Central Bank is located in Frankfurt, Germany. TEuro currency was adopted by some European countries in Jan, 1999. Since then, the ECB has been responsible for formulating and regulating the monetary policy of its member states. The ECB has a governing council that makes monetary decisions for its member states. The council has six executive members and each member country is allowed to send a governor to the Central Bank. The Governors Council has enlarged due to the expansion of the European Union (EU). With explanation it has become difficult for all incumbent members to vote in a meeting. So, the ECB introduced rotating voting criteria; though, the executive board members retain permanent voting rights. The key responsibility of ECB is to maintain price stability when formulating monetary policy. The ECB takes monetary objectives, reserves, interest rates into consideration when making monetary policy decision. It also issues guidelines on how to implement these decisions. The ECB meets every six weeks. The European Financial Crisis started in 2008. The negligence of banking supervision was one of its causes. It was in November, 2008 that ECB introduced Single Supervisory Mechanism (SSM) and now all member states are in SSM. The purpose of this function is to ensure the safety and integrity of European Banking System. The SSM aims to supervise member states banking systems to ensure they are functioning smoothly.