EUROPEAN CENTRAL BANK
The European Union established the European Central Bank in 1998 as a prelude to the adoption of the euro. The European Central Bank (ECB) is part of the European System of Central Banks (ESCB), which also includes the national central banks (NCBs) of all 15 European Union member nations. The term “Eurosystem” is used to refer to the nations within the European Union which have adopted the euro currency. Countries which have not yet adopted the euro, or chosen against doing so are given a special status within the ESCB. These countries are allowed to conduct their own national monetary policies, but not allowed to take part in the decision-making with regard to the single monetary policy for the euro area.
The primary objective of the European Central Bank is to maintain price stability and promote good general economic policies in the community, in accordance with the principles of an open market economy. The ECB is also responsible for conducting foreign exchange operations, manage the official reserves of member states, and promote the smooth operation of payment systems.
The decision making process of the ECB is done primarily through the Governing Council and the Executive Board. In addition, a third, but less important body, the General Council will exist, so long as there are nations within the European Union which have not yet adopted the Euro. The Governing Council is comprised of members of the Executive Board, and governors of National Central Banks of member states who have adopted the Euro. The main responsibilities of the Governing Council are to adopt the guidelines and take the decisions necessary to ensure the performance of the tasks entrusted to the Eurosystem; to formulate the monetary policy of the euro area, including, as appropriate, decisions relating to intermediate monetary objectives, key interest rates and the supply of reserves in the Eurosystem; and to establish the necessary guidelines for their implementation. The Executive Board is comprised of a President, a Vice-President and four other members, all chosen from among persons of recognized standing and professional experience in monetary or banking matters. The main responsibilities of the Executive Board are to implement monetary policy in accordance with the guidelines and decisions laid down by the Governing Council of the ECB and, in doing so, to give the necessary instructions to the NCBs; and to execute those powers which have been delegated to it by the Governing Council of the ECB. The General Council is primarily an advisory board. It contributes to the collection of statistical information, the preparation of the ECB's annual reports, and other supportive projects.
The European Central Bank’s capital comes from the National Central Banks of member states. In addition, the NCBs of the Member States participating in the euro area have provided the ECB with foreign reserve assets of up to an amount equivalent to around EUR 40 billion.
Sources Used:
European Central Bank: http://www.ecb.int/
Fact Monster: http://www.factmonster.com/ce6/bus/A0811099.html
Trema Case Study: http://www.trema.com/case_studies/CB_EuropeanCentralBank.htm
