Wednesday, July 18, 2012

the ECB

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The European Bank was established on the 1st of June 18. It was established to be at the forefront of the change to the euro. It was made to make the currency change easier for the member countries. The ECB does not just cover one country but is the central bank of 1 different countries each with their own culture, history and economic backgrounds. The European system of Central Banks (ESCB) is composed of the European Central Bank and the National Central Banks (NCBs) of about 15 EU states.

Since the 1st of January 1, 11 countries changed their national currency to that of the Euro; they included France, Ireland, Spain, Belgium, Italy, Finland, Portugal, Luxembourg, Netherlands, Austria and Germany. Then on the 1st of January 001, Greece also joined. Three of the EU states have not joined and they are Denmark, Sweden and the United Kingdom.

Euro bank notes and coins were introduced on the 1st of January 00. The introduction of a single currency for about 00 million Europeans provide enormous benefits for both consumers and businesses. It facilitates the trading of goods and services between participating countries thus strengthening the Single Market in the European Union. The primary objective of the Eurosystem is to maintain price stability. It is their job to make sure that (with the same money) the same amount of goods and services can be bought. It has a vital interest in the efficiency and the stability of the banking industry, and is therefore natural for the Eurosystem to monitor developments in the banking sector. This is closely foreseen by the Treaty establishing the European community even though responsibility for banking supervision remains in the hands of the national authorities. Countries that wish to change their currency to that of the Euro will have to meet a number of economic criteria which include low inflation, low interest rates, stable exchange rates and sound public finances. Their national banks also have to be politically independent. The fulfilment of these criteria � also called the Maastricht criteria � has laid a solid foundation for the new currency before it was launched. The Eurosystem supports the general economic policies in the Community and act in accordance with the principles of an open market economy.

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The ECB has an advisory role in relation to the Community and national authorities on matters which fall within its field of competence, particularly where Community or national legislation is concerned. Finally, in order to undertake the tasks of the ESCB, the ECB, assisted by the NCBs, shall collect the necessary statistical information either from the competent national authorities or directly from economic agents.

The process of decision-making in the Eurosystem is centralised through the decision-making bodies of the ECB, namely the Governing Council and the Executive Board. As long as there are Member States which have not yet adopted the euro, a third decision-making body, the General Council, shall also exist. There are about 1000 (as of March 001) staff members at the ECB headquarters in Frankfurt am Main, Germany. They have been recruited from the 15 EU countries and work in close co-operation with the staff of the national central banks to prepare and implement the decisions of the ECB decision-making bodies.

The Governing Council is the highest decision making body comprises of six members of the Executive Board and the governors of the NCBs of the Member States without a derogation, i.e. those countries which have adopted the euro.

The Executive Board comprises the President, the Vice-President and four other members; all chosen from among persons of recognised standing and professional experience in monetary or banking matters. They are appointed by common accord of the Heads of State or Government of the 1 countries which form the Euro area.

The General Council comprises the President and the Vice-President and the governors of the NCBs of all 15 Member States. The General Council also contributes to the advisory and co-ordinating functions of the ECB and to the preparations of the possible enlargement of the Euro area.

The national banks of the three Member States which have not yet adopted the Euro i.e. Denmark, Sweden and the United Kingdom, do not take part in decision-making regarding the single monetary policy for the Euro area. These Member States continue to have their own national currencies and conduct their own monetary policies.

The Eurosystem enjoys full independence in performing its tasks; neither the ECB nor the national central banks in the Eurosystem nor any member of their decision-making bodies is to seek or take instructions from any other body. The ECB has its own budget, independent of that of the European community. The ECBs capital amounts to EUR 5 billion. The NCBs are the sole subscribers to and holders of the capital of the ECB. The subscription of capital is based on a key established on the basis of the EU Member States respective shares in the GDP and population of the Community. It has, thus far, been paid up to an amount just over EUR 4 billion. The euro area NCBs have paid up their respective subscriptions to the ECBs capital in full. The NCBs of the non-participating countries have paid up 5% of their respective subscriptions to the ECBs capital as a contribution to the operational costs of the ECB. As a result, the ECB was endowed with an initial capital of just under EUR 4 billion. When Greece entered the third stage of EMU on 1 January 001 the Bank of Greece paid up the remaining 5% of its subscription to the ECBs capital.

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. The contributions of each NCB were fixed in proportion to its share in the ECBs subscribed capital, while in return each NCB was credited by the ECB with a claim in euro equivalent to its contribution. 15% of the contributions were made in gold, and the remaining 85% in US dollars and Japanese yen.

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