ECB and the Eurosystem explained in 3 min.

ECB and the Eurosystem explained in 3 min.


The European Central Bank and the
Eurosystem explained. This is Sarah. Sarah is currently
traveling around Europe. She finds it very convenient to buy
things with euros in many different places without having to change money, and it’s
easy for her to compare prices across different countries. She wonders
who’s looking after the Euro. Well, that’s the job of the European
Central Bank based in Frankfurt, and the central banks of the countries
that use the euro. All together they form the Eurosystem. The main task of
the Eurosystem is to define and implement monetary
policy for the Euro area. This means maintaining price stability.
In other words, keeping inflation rates at levels below
but close to 2 percent over the medium term. But what does all this
have to do with Sarah? High inflation would mean the prices
rise rapidly so over time Sarah wouldn’t get the same
amount of goods and services for the same amount of money. So the Eurosystem works hard to make sure
prices remain stable. It has a number of standard monetary
policy tools that it can use. The most important of these are the
decisions it takes on key interest rates which influence the economy and price
levels in the euro area. During the crisis, the Eurosystem has
also temporarily used additional measures to help the
functioning of the euro area. Important decisions in the Eurosystem are taken by the Governing Council of
the European Central Bank. This body is made up of all the
governors of the national central banks of the euro area countries, and the members of the European Central
Bank’s Executive Board. But council members don’t represent
their own country. They vote in a fully independent
capacity, in the interests of the euro area as a whole, and decisions are taken collegially with
each member having one vote, so it’s not just the
president of the European Central Bank taking decisions alone. The Eurosystem also has a number of
other tasks, such as ensuring the smooth operation of
payment systems, making it faster, safer, and easier to make cashless euro payments
throughout Europe. Holding and managing official reserves
in foreign currencies and other assets, and collecting and
compiling a wide range of statistics. And the
European Central Bank is also responsible for authorizing the
issuance of euro banknotes, some of which will end up in Sarah’s
pocket. And so as Sarah continues her trip around Europe,
she now has a clear idea of what and who is behind the euro, and she
understands better how the European Central Bank and the
national central banks affect people in the euro area wherever
they live, study, travel, or work.

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