The European Central Bank (ECB)  was established in June 1998 and has a capital of 4 billion Euros. This was the most important step to create the new common European currency, the Euro.
Its beginnings can be traced to the European Monetary System (EMS) in 1979. Its main feature was the exchange rate mechanism (ERM) , which introduced fixed but adjustable exchange rates among the currencies of the nine initial member countries. The ECB introduced the new common Euro currency as a transaction currency in 1999 in 11 member countries of the Eurozone that has grown to 15 members as of September 2008. The first Euro coins and banknotes were released in January 2002 and immediately accepted by the public. Like all fiat currencies the value of the € depends on the belief in its lasting purchasing power. The ECB tries to achieve this by keeping inflation at bay. Since the beginning of the global credit crunch the ECB has not been able to limit a drastic increase in inflation that has led to a political focus on inflation.
In contrast to the US Federal Reserve, which has to fight inflation and foster employment the ECB follows only the single mandate of monetary stability.
Monetary stability' is defined as an inflation rate not exceeding 2% in the long term.
At the same time money supply M3 growth should not exceed the reference rate of 4.5%. The ECB calls it a reference rate in order to signal that money supply growth is allowed to deviate from this rate.
The ECB has missed its M3 target since its inception. M3 growth ran at more than double the target rate in summer 2008 after reaching an all-time high of more than 12% earlier the same year. Money supply M3 began to contract for the first time in 2009, accompanying a Eurozone wide recession. Surging oil and commodity prices helped push Eurozone inflation to a record 4% in July 2008 but had receded to 3.2% in October. The last time inflation hovered at the target rate of 2% was in August 2007. Headline consumer inflation stood at 1% in January 2010.
The ECB sets three key interest rates for the Euro area:
FInd a table of past ECB interest rates at the ECB's website.
The ECB's monetary policy is formulated by the governing council once a month. The governing council meets every 2 weeks. It consists of the ECB' executive board, currently led by president Jean-Claude Trichet, and the governors of the Eurozone's central banks.
After its governing council meetings the ECB issues a statement on the outcome of its discussions. 45 minutes later the ECB president holds a regular press conference that begins with an extensive introductory statement followed by a Q&A session and can be followed via webcast on the ECB's website . The second most important publication is the release of money supply figures. The ECB also publishes a monthly bulletin. The ECB does not publish minutes of the meeting as does the Federal Reserve.
Article 2 Of the EU Treaty states that the EU aims to promote "economic and social progress and a high level of employment and to achieve a balanced and sustainable development." The Eurosystem contributes to these objectives by maintaining price stability. In addition, in pursuit of price stability, it takes these objectives into account. Should there be any conflict between the objectives, the maintenance of price stability must always be given priority by the ECB. ECB Mandate (PDF)
In its decision making the ECB relies on its expert staff in several committees. The committees are as follows:
Under its statues the ECB is independent from governmental or other influences when it changes interest rates in order to fight inflation. ECB chief economist Jürgen Stark hinted in a speech from September 5, 2000, at growing political intervention: "In the current challenging environment, maintaining price stability is both more demanding and more important than usual. Siren voices from various quarters ask that we subordinate this duty to other considerations. Such voices are becoming ever more voluble. In this context, the principles embedded in our monetary policy framework have been, I think, instrumental in ensuring that we stay the course."
In contrast to the national central banks (NCBs), the ECB carries out only few operations. Instead, it focuses on formulating the policies and on ensuring that the decisions are implemented consistently by the NCBs.
In particular, the ECB is responsible for
Further, the ECB is responsible for
Current Euro members are listed here in alphabetical order. Find the year of initial membership in brackets and links to all ECB member central banks.