THE EUROPEAN CENTRAL

BANK
Establishment of EU
• The EU was created by the Maastricht Treaty, which entered
into force on November 1, 1993.
• The treaty was designed to enhance European political
and economic integration by
• creating a single currency (the euro),
• a unified foreign and security policy,
• and common citizenship rights and
• by advancing cooperation in the areas of immigration, asylum, and
judicial affairs.
Important institutions of EU
• the European Parliament,
• the European Council (of Heads of State or Government),
• the Council of the European Union (of national Ministers, a
Council for each area of responsibility),
• the European Commission,
• the Court of Justice of the European Union,
• the European Central Bank and
• the Court of Auditors.
ECB– A brief History
• In accordance with the treaty signed in Maastricht on February 7, 1992,
member countries replaced their national currencies with the euro on
January 1, 1999
• The euro was adopted as legal tender on 1st January 1999 by 11
countries
• Maastrich treaty also laid foundation for European Monetary Institute
(EMI) as a transitional institution to coordinate the preparatory work on
monetary policy
• Development of an operational framework for monetary policy for the
European System of Central Banks (ESCB), which will consist of the
European Central Bank (ECB) and the national central banks of the
European Union’s (EU’s) member states.
Structure
• Similar to the Federal Reserve System
• Known as European System Of Central Bank (ESCB)
• At the top of the ESCB is the Frankfurtbased ECB,
• Each nation has their central bank

• the primary objective of the ESCB shall be to maintain price stability.

• At present there are 27 countries under EU
Austria, Belgium,
Bulgaria, Croatia,
Republic of Cyprus,
Czech Republic,
Denmark, Estonia,
Finland, France,
Germany, Greece,
Hungary, Ireland, Italy,
Latvia, Lithuania,
Luxembourg, Malta,
Netherlands, Poland,
Portugal, Romania,
Slovakia, Slovenia,
Spain and Sweden .
Composition
The ECB President represents the Bank at high-level EU and
international meetings.
The ECB has the 3 following decision-making bodies:

• Governing Council – the main decision-making body.

Consists of the Executive Board (see below) plus the governors of the
national central banks from eurozone countries.
• Executive Board – handles the day-to-day running of the ECB.
Consists of the ECB President and Vice-President and 4 other members
appointed for 8-year terms by the leaders of the eurozone countries.
• General Council – has more of an advisory & coordination role.
Consists of the ECB President and Vice-President and the governors of the
central banks from all EU countries.
Functions of ECB
• sets the interest rates at which it lends to commercial banks in
the eurozone (also known as the euro area), thus controlling money
supply and inflation
• manages the eurozone's foreign currency reserves and the buying or
selling of currencies to balance exchange rates
• ensures that financial markets & institutions are well supervised by
national authorities, and that payment systems work well
• ensures the safety and soundness of the European banking system
• authorises production of euro banknotes by eurozone countries
• monitors price trends and assesses risks to price stability.
Printing of Currency
• In 1999, Euro was issued digitally
• 2002, Euro Notes and Coins are in circulation
• Since 2002, euro banknotes have been produced jointly by
the national central banks (NCBs) of the euro area. Each NCB
is responsible for, and bears the costs of, a proportion of the
total annual production in one or more denominations.
• Responsibility for minting euro coins lies with the national
governments of the euro area countries