European Central Bank (ECB)

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The European Central Bank (ECB) [1] 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.

Monetary Policy

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.

Key Interest Rates

The ECB sets three key interest rates for the Euro area:

  • The interest rate on the main refinancing operations (MRO), which provide the bulk of liquidity to the banking system.
  • The rate on the deposit facility, which banks may use to make overnight deposits with the Eurosystem.
  • The rate on the marginal lending facility, which offers overnight credit to banks from the Eurosystem.
  • The leading overnight interest rate was slashed to the record historical low of 1% as of May 13, 2009.
  • The rate on the deposit facility has been standing at the record low of 0.25% in April 2009.
  • The marginal lending facility rate was cut to the record low of 1.75% by May 13, 2009.

FInd a table of past ECB interest rates at the ECB's website.

Governing Council

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 [2]. 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.

The ECB's Mandate

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)

Expert Committees

In its decision making the ECB relies on its expert staff in several committees. The committees are as follows:

  • Accounting and Monetary Income Committee
  • Banking Super vision Committee
  • Banknote Committee
  • Committee on Cost Methodology
  • Eurosystem/ESCB Communications Committee
  • Eurosystem IT Steering Committee
  • Information Technology Committee
  • Internal Auditors Committee
  • International Relations Committee
  • Legal Committee
  • Market Operations Committee
  • Monetary Policy Committee
  • Payment and Settlement Systems Committee
  • Statistics Committee


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.[3]

In particular, the ECB is responsible for

  • Defining Eurosystem policies: the Governing Council of the ECB is in charge of monetary policy for the single currency. This includes the definition of price stability, how inflationary risks are analysed, etc.
  • Deciding, coordinating and monitoring the monetary policy operations: the ECB instructs the NCBs on the details of the required operations (value, time, date, etc.) and checks their successful execution.
  • Adopting legal acts: within closely defined limits, the decision-making bodies have the power to issue intra-Eurosystem binding legal acts, such as Guidelines and Instructions, to ensure that decentralised operations are carried out consistently by the NCBs. Moreover, within defined limits, they can adopt Regulations and Decisions, which are binding outside the Eurosystem.
  • Authorising the issuance of banknotes: this encompasses the strategic planning and coordination of the production and issuance of euro banknotes. Furthermore, the ECB coordinates the Eurosystem's research and development activities and the security and quality of the euro banknote production. In addition, the ECB hosts the Counterfeit Analysis Centre for the analysis and classification of euro counterfeits, the central database for euro banknote counterfeits, and the International Counterfeit Deterrence Centre, which contributes to global central bank cooperation on counterfeit deterrence under the auspices of the G10 Governors.
  • Interventions on the foreign exchange markets: if needed, also jointly with individual NCBs. This involves the buying and/or selling of securities on foreign exchange markets.
  • International and European cooperation: in order to present its views at the international and European level, the ECB participates in the meetings of various international and European fora. In December 1998, the ECB became the only central bank in the world to be granted observer status at the International Monetary Fund (IMF) and it now participates in all meetings of the IMF's Executive Board on issues relevant to Economic and Monetary Union. For this reason, the ECB has established a permanent representation in Washington D.C. Moreover, the ECB participates in meetings of the G7, the G20 and the Financial Stability Forum. At the European level, the President of the ECB is regularly invited to attend meetings of the Eurogroup, the monthly informal gatherings of euro area finance ministers. Moreover, the ECB may participate in meetings of the EU Council whenever issues relating to the objectives and tasks of the Eurosystem are discussed.

Further, the ECB is responsible for[4]

  • Statutory reports: the reporting obligations are laid down in the Statute of the European System of Central Banks (Article 15). The ECB produces a Monthly Bulletin, a consolidated weekly financial statement of the Eurosystem and an Annual Report.
  • Monitoring financial risks: this involves assessing the risks of securities, either those purchased in the context of the investment of the ECB's own funds and foreign reserves or of those securities that have been accepted as collateral in Eurosystem credit operations.
  • Fulfilling advisory functions to Community institutions and national authorities: the ECB adopts "Opinions" on draft EU and national legislation, where it concerns the ECB's field of competence.
  • Running the IT systems: the ECB and the NCBs have established a number of common operational systems to make it easier to carry out decentralised operations. These systems provide the "logistical" support for the Eurosystem's functional integrity. These systems encompass information systems, applications and procedures. They are organised according to a "hub-and-spokes" approach, with the hub located at the ECB.
  • Strategic and tactical management of the ECB's foreign reserves: this involves the definition of the long-term risk return preferences of the foreign reserve assets (strategic asset allocation), the steering of the risk-return profile against the background of prevailing market conditions (tactical asset allocation) and the setting of the investment guidelines and the overall operational framework.

Current members of the Euro

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.

  • Austria (1999) Oesterreichische Nationalbank (OeNB) [5]
  • Belgium (1999) National Bank of Belgium [6]
  • Cyprus (2008) Central Bank of Cyprus-Κεντρική Τράπεζα της Κύπρου [7]
  • Finland (1999) Bank of Finland [8]
  • France (1999) Banque de France [9]
  • Germany (1999) Deutsche Bundebank [10]
  • Greece (2006) Bank of Greece-Τράπεζα της Ελλάδoς [11]
  • Ireland (1999) Central Bank of Ireland [12]
  • Italy (1999) Banca d'Italy [13]
  • Luxembourg (1999) Banque de Luxembourg [14]
  • Malta (2008) Central Bank of Malta [15]
  • Netherlands (1999) De Nederlandsche Bank [16]
  • Portugal (1999) Banco de Portugal [17]
  • Slovakia (2009) Narodna Banka Slovenska [[18]
  • Slovenia (2007) Banka Slovenije [[19]


  1. The ECB statutes
  2. Central Bank of Cyprus
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