What is the European Central Bank?
European Central Bank is the apex bank of the member European countries which monitors the banking and financial functions of all the members countries with the aim of maintaining the price stability of the European currency i.e., Euro which is adopted by all the members country in order to maintain the price stability and preventing themselves from the financial troubles.
Explanation
European Central Bank is the central bank of the European countries, which has the single aim of maintaining the price stability of the Euro, which is adopted by all the member states. It aims at controlling the inflation by monitoring the monetary policy and controlling the money supply in the market by way of interest rates. It is managed and monitors by the team of the European central bank. The members of the team are amongst representatives of the member states as decided and agreed mutually. The bank functions according to the pre-defined rules and regulations, and all the decisions are taken on the majority basis after surveying the market situations and market conditions.
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History
The European Central Bank was started on 1st January 1999, when some of the European Union members adopted the Euro currency. The head office is situated in Germany and consists of 27 members currently. The main aim behind establishing the Bank is to increase the purchasing power by various monetary policies. It also guides the members about the implementation of various policies and on other financial matters. It is a bank for Europe’s single currency i.e., Euro, which aims to maintain the price stability of the Euro in the international market. The bank is accountable to the public through the parliament and publishes the annual reportAnnual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more as the report of its accounts, functions, and actions.
Objectives
- Maintain the price stability of the currency, i.e., Euro.
- To monitor the banking system of member states.
- To monitor and aid in preparing the monetary policy.
- Ensure the economic growth and maintenance of purchasing power.
- Guiding the member states about the foreign exchange operations and the transactions.
- Ensures the smooth conduct of business and economy.
- Maintains the balance of trade in terms of imports and exports.
- Issue the guidelines on operations by the member states’ banks also ensure and monitor the compliances.
How does the European Central Bank (ECB) Works?
The working is as under –
- The Team of ECB consists of 6 Executive members plus the Governors of the central bank of all the member states plus president and vice-president.
- The team ensures the performance of their states’ banking system as per the guidelines.
- The Monetary Policy is framed with the suggestions and reviews from all the team members and also on the basis of market survey.
- The team of banks ensures the guidelines issued by the bank are followed by the member states by inspection, audit, and report on this behalf.
- Then, the team meets twice a month and discuss the various reports on compliance and auditCompliance And AuditCompliance Audit is a detailed review of organization’s compliance towards statutory laws, local laws, internal rules, and decisions of the organization as applicable.read more.
- It segregates the responsibilities amongst the members, and members ensure the compliance and monitor the guidelines.
- Then after the discussion on the reports, the final report is sent to all the members consist of the reviews by the team, their drawbacks, and suggestions to improve.
- The final report is approved by the president and vice-president.
Structure of the European Central Bank
- President and vice-president are the chairpersons of the bank, which ensures, monitor, and issue the various guidelines.
- Governing Council consists of members under the president and vice-president. The members consist of 6 persons as the members of the executive board and the governors of the member states. The governing council participates in policy formulation and strategic decisions.
- Under the Governing council, there is an executive board that consists of a president, vice-president, and the four members nominated by the executive council. They are responsible for monitoring and enforcing the guidelines and policies.
- After the Governing council, there is general council consist of the president, vice-president, and the governors of the member states who are responsible for data collection and implementation of their state and report on the implementation of the guidelines and policies.
- Under the general council, there is a supervisory board consist of the membersBoard Consist Of The MembersBoard members comprise the individuals whom the shareholders elect as their representatives. They are responsible for taking crucial corporate decisions regarding the company's policies, dividend payouts, top-level managers' recruitment or layoff and executive compensation.read more nominated by the European Central bank, which at ground level supervises the banking and financial activities.
- At all levels, transparency and accountability are the musts.
Functions of ECB
- To Prepare the Monetary policies to maintain the price stability.
- Monitor the banking and financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more and ensures their compliance with the regulation and smooth conduct.
- To control the inflation and unemployment of the member states.
- Monitor the import-export transactions of the member states.
- Guides the member states on the functioning.
- Conduct surveys and audits of the member states.
- Maintain the stability of the currency in the international market.
- Ensuring the economy’s smooth functioning.
- Formulate plans for economic growth.
- Ensures transparency and accountability at all levels and professional competency of all the members.
Conclusion
European Central bank is the controlling bank of all the member states. Currently, 27 European countries are a member of the ECB. The main aim behind establishing the bank is to maintain the price stability of the currency adopted by all the members i.e., Euro in the international market. The bank is also responsible for issuing guidelines, monitoring the banking system, controlling inflation and unemployment, and maintaining price stability. The structure consists of president and vice-president as the chairpersons and Governors of all the member states and other six executives as the Governing Committee. Under the Governing committee, there are various committees through which compliance is ensured. Through the audit reportsAudit ReportsAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company's financial statements.read more and compliance reports, the loopholes and suggestions are communicated to the member states. The committee of the European central bank meets twice in a month to ensure smooth conduct and to formulate and discuss the plans for achieving the various objectives, which ensures the growth of the member countries.
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