European Central Bank What Is It, History, Functions, Structure

Finally, it states that the ECB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources. Importantly, we acknowledge in our latest review that we expect inflation to be subject to shocks pushing it more strongly away from target, in either direction. It is important for us to communicate this now, to help us explain our actions when we see larger shocks. The Bank of Russia holds consultations with like-minded countries about use of CBDCs in cross-border payments. Joel Suss is a data journalist and heads up the data output for the Monetary Policy Radar.

ECB’s Communication Strategy

The ECB’s transparency in its decision-making process is evident through its regular communication with the public and financial markets. This includes press conferences and the publication of monetary policy decisions, which provide insights into the council’s outlook and policy rationale. The ECB employs a range of tools to influence monetary conditions and achieve its inflation target.

Main developments

Consistent and standardised unholy grails – a new road to wealth supervision throughout the euro area helps keep your money safe by making banks more robust. Here at the European Central Bank (ECB), we work to keep prices stable in the euro area. We do this so that you will be able to buy as much with your money tomorrow as you can today. In response to the uncertainty caused by the COVID-19 pandemic, the ECB launched the Pandemic Emergency Purchase Programme (PEPP) in 2020. Through this program, the ECB injected liquidity into the markets by purchasing assets worth a total of €1.85 trillion.

Additionally, the ECB supports general economic policies in the EU to contribute to the achievement of the Union’s objectives. The eurozone sovereign debt crisis, and the ECB’s subsequent decision to step outside of its traditional role by purchasing government bonds, generated debate over the bank’s position. Federal Reserve, the ECB does not have a mandate to pursue full employment, and the Maastricht Treaty prohibits it from directly financing national governments. The absence of a fiscal union, including a eurozone-wide treasury to pool debt, has also complicated the ECB’s potential role as lender of last resort. This consists of the President of the ECB, a Vice-President and four other members, chosen every eight years by the European Council by a qualified majority from persons with recognised authority and experience in monetary or banking matters. The Committee is concerned with the implementation of monetary policy, in accordance with the decisions and guidelines of the Governing Council, issuing instructions to national central banks.

• Learn how Europe has grown closer with the introduction of the common currency and the creation of joint banking supervision.
• The OIS differential widened in 2024, making the issuance of bonds in euro more attractive relative to US dollars.
• In addition, the ECB is the sole issuer of euro bank notes and manages the eurozone’s foreign currency reserves.
• We are a team of dedicated industry professionals and financial markets enthusiasts committed to providing you with trading education and financial markets commentary.
• The planned issuance of bonds at the EU level – as Europe takes charge of its own defence – could make an important contribution to achieving these objectives.
• Together with national supervisors in the Single Supervisory Mechanism, the ECB reviews how banks conduct their activities.

Monetary policy tools

Each monetary policy decision by the Governing Council is based on an assessment of the monetary policy stance. The assessment of the monetary policy stance determines whether monetary policy is contributing to economic, financial and monetary developments in a way that maintains price stability over the medium term. The appropriate monetary policy stance is delivered by choosing and calibrating the appropriate monetary policy tools, both individually and in combination. Moreover, some countries have continued to explore alternatives to traditional cross-border payment systems.

The ECB has one primary objective – price stability – subject to which it may pursue secondary objectives. Draghi’s presidency started with the impressive launch of a new round of 1% interest loans with a term of three years (36 months) – the Long-term Refinancing operations (LTRO). The operation also facilitated the rollover of €200bn of maturing bank debts43 in the first three months of 2012. The aim of the ECB’s strategy review was to make sure our monetary policy strategy is fit for purpose, both today and in the future.

General Council

• Finally, the global appeal of the euro is underpinned by sound policies in the euro area and strong, rules-based institutions.
• It holds a press conference after each monetary policy meeting, and later publishes the meeting minutes.
• New challenges to the euro’s international role have also emerged, including initiatives promoting the global use of cryptocurrencies.
• The ECB also requires Eurozone lending institutions to hold accounts with their national central banks, where minimum or required reserves must be deposited.
• Interest rate differentials between the Eurozone and other major economies can lead to fluctuations in the euro’s value, impacting European exporters and importers by affecting the cost of goods and services.

This includes the Supervisory Council, the fourth decision-making body of the ECB, which consists of a President, a Vice-President (member of the Executive Board of the ECB), four representatives of the ECB and representatives of national supervisory authorities. On 1 November 2011, Mario Draghi replaced Jean-Claude Trichet as President of the ECB.38 This change in leadership also marks the start of a new era under which the ECB will become more and more interventionist and eventually ended the Eurozone sovereign debt crisis. The Treaty states that the ECB shall also contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system. To join the euro area, the countries had to fulfil the convergence criteria, as will other EU Member States prior to adopting the euro. The criteria set out the economic and legal preconditions for countries to participate successfully in Economic and Monetary Union.

Response to the financial crises (2008–

Additionally, the ECB utilises forward guidance as a communication tool to provide markets and businesses with insights into the future path of monetary policy. By offering guidance on the likely direction of interest rates, the ECB aims to influence market expectations and support economic stability. In August 2018, Greece completed its rescue program, nearly a decade after its debt crisis began and three years after Prime Minister Tsipras accepted the terms for a third bailout. Others, including the International Monetary Fund (IMF), warn that the country’s debts are unsustainable, pointing to an economy that is still smaller than it was a decade ago, with rising poverty and the eurozone’s highest unemployment rate. Though the ECB is an avowedly nonpolitical institution, Greece’s reliance on ELA gave the bank an unavoidable role in the fraught negotiations over a new Greek bailout. As the crisis intensified, more people withdrew money from Greece’s banks, making them increasingly reliant on the ECB, whose emergency liquidity support surpassed 88 billion euros ($97 billion) in June 2015.

The ECB focuses on key areas such as monetary policy implementation, financial supervision activities, and international cooperation. Tapering refers to the gradual reduction of the pace of the ECB’s asset purchases. As the economy recovers, reducing QE can signal the ECB’s confidence in the economic outlook, potentially strengthening the euro. Interest rate decisions are among the most closely watched announcements by the ECB. A rate hike usually strengthens the euro, as it attracts investors looking for higher returns on investments in euro-denominated assets.

Finally, the global appeal of the euro is underpinned by sound policies in the euro area and strong, rules-based institutions. Upholding the rule of law remains essential for maintaining, and potentially increasing, global trust in the euro. The ECB can intervene in the foreign exchange market to stabilize the value of the Euro. For example, if the Euro appreciates excessively, harming exports, the ECB may sell Euros or purchase foreign currencies to weaken the Euro. Similarly, in cases of depreciation, the ECB may buy Euros to stabilize its value. The European Central Bank (ECB) was established in 1998 and began operating as the central bank of the Eurozone.

An index tracking mentions of initiatives on cross-border payments in communiqués of G7 and BRICS leaders since 2008 shows that mentions by BRICS leaders picked up noticeably in the wake of Russia’s full-scale invasion of Ukraine (Chart 12, panel b). In March 2025 Hong Kong announced plans to develop an Asian international settlement house aimed at reducing dependence on traditional financial infrastructure and boosting the global use of the renminbi. News reports suggested that crypto-assets were being increasingly used to settle a portion of oil exports by Russia and smooth the conversion of Chinese renminbi and Indian rupees into roubles. During these meetings, decisions on interest rates, asset purchases, and other monetary policy tools are made.

European Central Bank (ECB): Definition, Structure, and Functions

Additionally, central bank money is created to buy the bonds and this money is used by the institutions that sell the bonds to buy other assets. This bids up the price of these assets, increasing the wealth of the investors who own them and strengthening their incentives to spend. This, again, can bring the economy back to a sustainable growth path and to an inflation rate that is consistent with the ECB’s objective.