European Central Bank
Overview
The European Central Bank (ECB) is the central bank for the Eurozone, a collection of 19 European Union (EU) member states which have adopted the euro (€) as their common currency and sole legal tender. The ECB operates in a framework of a central banking system among the Eurosystem and the European System of Central Banks (ESCB).
History
The European Central Bank was established on 1 June 1998, following the Treaty of Amsterdam that amended the Treaty on European Union. The ECB's headquarters are in Frankfurt, Germany. The bank was the final institution to be established in preparation for the introduction of the euro, which was launched on 1 January 1999.
Mandate
The primary objective of the ECB is to maintain price stability within the Eurozone. The ECB has the exclusive authority to authorize the issuance of euro banknotes. Member states can issue euro coins, but the amount must be authorized by the ECB beforehand.
Structure
The ECB is governed by European law directly, but its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is €11 billion held by the national central banks of the member states as shareholders. The initial capital allocation key was determined in 1998 on the basis of the states' population and GDP, but the key is adjustable. The adjustment is done every five years and whenever a new country joins the EU. The shares in the ECB are not transferable and cannot be used as collateral.
Monetary Policy
The ECB's monetary policy is to maintain price stability, which it defines as inflation of below, but close to, 2% over the medium term. The main tasks of the Eurosystem are to define and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and to promote smooth operation of the money market infrastructure under the TARGET2 payments system.
Criticism
The ECB has been criticised for its handling of the European debt crisis. Critics argue that the ECB's monetary policy increased economic inequality within member states, leading to social problems such as a rise in far right parties.
See Also
