European Central Bank

The European Central Bank is currently one of the most crucial central banks in the world. The central bank plays a vital role in controlling and covering the thirteen European countries included in the Eurozone.

The European Central Bank has just been founded in 1998. ECB is presently headquartered in Frankfurt, Germany wherein its organization and structure is based on the Landesbanken and the German Bundesbank. Its governing body is spearheaded with a president, backing up is the board of directors and local central bank representatives of the ESCB or the European System of Central Banks. The President of the European Central Bank as of press time is Jean-Claude Trichet. Trichet leads the 13 central banks located in Spain, Slovenia, Portugal, Netherlands, Luxembourg, Italy, Ireland, Greece, Germany, Finland, France, Belgium and Austria.

The countries Spain, Italy, Germany and France currently hold four of the major seats in the executive board of directors. The board’s members are elected through nomination by the member European countries. All of the 6 members of the executive board of directors will decide and elaborate strategies for policies of the European Central Bank. Jean Claude-Trichet is assisted by vice president Lucas Papademos. With the combined efforts of the members and directors of the European Central Bank, ECB is currently holding and directly reserving €43 bn, €338 bn from the Eurosystem which also includes gold deposits and €145 bn from reserves of foreign currency.

The main objective of the European Central Bank is to keep the price stability of the commodities in countries that belong to the euro area. The central bank aims to maintain a low inflammation rate below two percent. According to the Treaty of the European Union, the European Central Bank will also be supporting the European Union’s economic policies. As a result of this primary objective, the member countries of the European Union will benefit from high employment rate, and non-inflationary and sustainable economic progress.

To realize and carry out the objective of the European Central Bank, the ECB is bound to do primary tasks of maintaining the monetary policy as written and published in the ECB website. ECB’s primary means of carrying out their objective are accomplished through these three important tools. The first one is the main refinancing operations. Through these transactions, money is coming into the bank. The second tool is the deposit facility through the aid of deposits made over night by private banks. The third tool is the marginal lending facility provided for private banks.

Furthermore, the European Central Bank conducts operation on foreign exchange, holds and manages the foreign reserves of countries belonging to the Eurozone. Today, the central bank houses a total of €40 billion of official reserves, thirty percent of which are gold reserves. ECB makes it sure that all payment systems are carried out in smooth operations.

ECB is also exclusively authorized to issue banknotes for the euro area. And with the help of the National Central Banks, ECB performs statistics that are necessary for completing the tasks from the economic agents or the national authorities. ECB keeps a good working relationship between the European Union and the International Community.

The central bank has been serving all the member countries of the EU well for the last nine years now, although there are still some criticisms from several economists specifically targeting the ECB rates. Critics insist that the ECB’s low interest rates are inappropriate. ECB rates are set low to so that deflation will not happen in Eurozone.

Although the European Central Bank has been receiving criticism, it is a significant part of the Union’s economy. ECB like many other central banks in the world is true to its commitment in providing sustainable and stable economy.