The Central European Bank (ECB). Functions of the European Central Bank

The Central European Bank is the central bank of the European Union and the Eurozone. It is known as the most independent bank in the world. It is this financial institution that has the full right to independently resolve any issues related to the euro. The institution was founded in 1998. The first president of the financial institution was Wim Duisenberg, who was elected for a period of 5 years. In October 2003, Jean-Claude Trichet took over as the new president. Today the leading position belongs to Mario Draghi.

History

After the end of World War II, the unification of Europe began. Structurization was activated and the formation of a single market space began. In the period from 1947 to 1957 the period of integration of the states of the region with parallel emergence of the European payment union was successfully passed. In 1957, the largest European states joined the European Economic Community. In 1979, the EEC introduced conditional money - ECU - for making payments, which were immediately tied to a basket of European currencies. The Memorandum on the Formation of the European Currency Area and the ECB was signed in 1988. CB "Central European Bank" LLC appeared after the signing in 1992 in the territory of Maachstricht of the international treaty on the establishment of the EU, and also after the formation of the European Monetary Institute, whose duties included preparation for the transition to a single currency, the euro.

External and internal structures

The Central European Bank has a unique management team. It includes representatives of each of the EU member states. Questions relating to the work of the financial institution, discount rate, bills and other issues are specified by the directorate of the institution and the board of governors. The management consists of 6 people, with the chairman of the bank and his deputy inclusive. The governing body is elected for an eight-year term. Candidates for a seat in the Directorate are nominated and considered by the European Parliament and the leaders of states that are part of the European zone. The ECB is a member of the European System of Central Banks, which includes the national securities of the EU countries. The international system functions according to a two-level algorithm. Any issue regarding monetary policy can be resolved only if agreement is reached at each level.

General information

The Central European Bank, since its creation in Germany, in Frankfurt, has united under its leadership a whole system of European central banks. The structure of the structure includes:

• Bank of Belgium.
• Bundensbank.
• Bank of Greece.
• Bank of Spain.
• Bank of France.
• Monetary Institute of Luxembourg.

The status of the legal entity is only the ECB, all other financial institutions that are part of the system, play the role of auxiliary units. Their tasks are secondary. The main objective of the ECB is to prevent a sharp rise in prices and stabilize the inflation rate, which should not exceed 2%. Any decisions and actions of the bank have a direct impact on the exchange rate of the European currency in relation to other currencies of the world. Sharp fluctuations cause a change in the interest rate and the provision of credit to member states of the union.

What does the ECB do?

The Central European Bank performs several dominant functions simultaneously:

• Development and implementation of monetary policy in the euro area.
• Providing, developing and managing the exchange reserves of states from the euro area of an official nature.
• Euro emission.
• Setting of interest rates.
• Ensuring price stability in the European zone.

Indicators of the ECB are the index of prices for goods for consumers throughout the EU and the size of the money supply, the growth of which during the year should not be more than 4.5%.

The main interest rates of the bank

The functions of the European Central Bank cover the definition and setting of interest rates. Interest rates can be of three types:

• Refinancing rate. This is the interest rate, which determines the minimum value for applications for raising funds in a tender conducted by the ECB.
• The rate on deposits. This is the interest rate, which is the base for the placement of free cash in the institutions of the ECB. The interest rate plays the role of the lower limit in the overnight interest market.
• The maximum rate on loans is the rate at which banks in the structure of the ERU can obtain a loan, which is necessary to maintain short-term liquidity. The marginal rate plays the role of the upper limit of the range within the framework of the overnight interest market.

By setting these types of rates, the Central European Bank forms the demand or supply of currency, ensures its stability and controls the cash flows within the zone.

General Provisions

The Central European Bank is a unique legal entity, whose work is based on international agreements. The authorized capital of the institution at the time of its creation amounted to 5 billion euros. The largest banks in Europe acted as shareholders. German "Bundesbank" contributed 18.9% of the capital, the bank of France - 14.2%, the bank of Italy - 12.5%, the bank of Spain - 8.3%. The rest of the Central Banks of the European states contributed from 0.1% to 3.9% of the initial authorized capital. The executive board supervises the activities of the financial institution, which was mentioned above, and is headed by the chairman of the European Central Bank. The main feature of a financial institution is full independence. At the same time, the institution is obliged to report every year on its activities to the European Parliament, the European Commission, the Council of the European Union and the Council of Europe.

Business Policies

To achieve its objectives, the ECB uses such instruments as stabilization loans and mortgage auctions, foreign exchange transactions and transactions in open markets. The most powerful instrument for regulating the financial market is the rate of the European Central Bank. The work of the monetary institution is based on the principles of independence from other states, as well as from the bodies of the supranational order. The work of the latter primarily provides for the lack of coercion when overlapping external debt and internal. To make decisions on each specific resolution, the majority of the members of the management council should vote for it. Each of them has only one opportunity to vote. The head of the European Central Bank should follow the advice of the council. Only after the adoption of a definite decision, central banks of European states can be actively involved in its implementation.

The powers of the ECB and national central banks

The ECB, with joint efforts with the Central Bank of the member states of the association, has the right to form relations with the Central Banks of other states, and, if necessary, with international-type organizations. Opportunities for acquiring, selling and forwarding any types of assets, including bank metals, are open. The concept of "currency assets" includes securities in any currency and in any units of calculation. Possession and management of assets. The ECB conducts a wide range of banking organizations of any type, in which international organizations, representatives of a third party can act as partners. Partnerships can include borrowing and lending operations. In addition to the main functions mentioned above, the European Bank, in cooperation with the Central Banks of Europe, can conduct operations for administrative purposes, and act in the interests of the board members. An important stage in the resolution of the bank's activities can be called the formation of the European Monetary System, which began its existence in 1979.

The European Monetary System within the ECB

The refinancing rate of the European Central Bank is not the only thing that affects the European Monetary System. EBU itself has a number of specific tasks. You can talk about the following areas:

• Securing monetary stability within the EU.
• The maximum simplification of convergence processes with active economic development.
• In conditions of stability, the currency system provides a growth strategy.
• Stable systematization of foreign exchange and economic relations of an international character.

It is thanks to the introduction of a monetary unit such as the ECU into circulation that the states of the European Union have successfully coped with the crisis of the 1980s. After the victory over the inflation process, restrictions were removed on the conduct of current financial transactions. Since 1990, the regime of free flow of capital has been activated. Initially, the goal of the EU was to ensure optimal conditions for the movement of goods and services, capital and labor. The ECB was created to stimulate the introduction of a common currency, a single citizenship. His work at the planning stage was to help form the organizational and legal mechanisms for coordinating not only foreign policy, but also the security policy of each participating state.