European Central Bank (ECB)

What is European Central Bank (ECB)?

The European Central Bank (ECB) is the central bank responsible for monetary policy of the European Union (EU) member countries that have adopted the euro currency. This currency union is known as the eurozone and presently incorporates 19 countries. The ECB's primary objective is price stability in the euro area.

Grasping European Central Bank (ECB)

The European Central Bank (ECB) is settled in Frankfurt am Main, Germany. It has been responsible for monetary policy in the Euro area starting around 1999, when the euro currency was first adopted by some EU members.

ECB Structure

The ECB Governing Council pursues choices on eurozone monetary policy, including its objectives, key interest rates and the supply of reserves in the Eurosystem containing the ECB and national central banks of the eurozone countries. It likewise sets the overall system for the ECB's job in banking supervision.

The Council comprises of six executive board members and a rotation of 15 national central bank governors. Rather than an annual rotation of voting rights, with respect to regional Federal Reserve bank presidents, the ECB pivots voting rights month to month.

Central bank governors from the main five countries by the size of their economies and banking systems — as of May 2022, Germany, France, Italy, Spain, and the Netherlands — share four voting rights, while the central banks of different countries vote just somewhat less habitually at 11 months out of each and every 14.

ECB Mandate

The ECB's order is for price stability and it targets an annual inflation rate of 2% over the medium term.

Like the Federal Reserve's inflation targeting, it is symmetrical, with the goal that inflation too low relative to its target is seen as negatively as inflation above it.

The 2% target gives a buffer against the risk of a weakening deflation during a recession.

European Central Bank (ECB) Functions

The primary responsibility of the ECB, linked to its order of price stability, is figuring out monetary policy. Monetary policy decision meetings are held at regular intervals, and the ECB is transparent about the thinking behind the subsequent policy announcements. It holds a press conference after each monetary policy meeting, and later distributes the meeting minutes.

The Eurosystem contains the ECB and the central banks of Eurozone countries. The Eurosystem deals with the euro currency and supports the ECB's monetary policy. The parallel European System of Central Banks incorporates all central banks of EU states, including those that poor person adopted he euro.

The ECB is additionally the EU body responsible for banking supervision. Related to national central bank supervisors, it operates what is called the Single Supervisory Mechanism (SSM) to guarantee the adequacy of the European banking system. The SSM implements the consistency of banking supervision rehearses for member countries — careless supervision in some member countries contributed to the [European financial crisis](/european-sovereign-obligation crisis). The SSM was sent off in 2014. All euro area countries are in the SSM and non-euro EU countries can decide to join.

Features

• The European Central Bank (ECB) is the central bank of the European Union and the Eurozone currency union.
• The ECB's primary order is price stability; it targets 2% inflation over the medium term as a buffer against the risk of weakening deflation.
• The ECB organizes Eurozone monetary policy, including setting target interest rates and controlling the supply of the euro common currency.
• ECB decisions on monetary policy and banking supervision are made by the ECB Governing Council including six executive board members and a month to month rotation of national central bank governors.