Date post: | 12-Nov-2014 |
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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%
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.
*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
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.