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The European Central Bank (ECB): Structure and Purpose

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  • 0:02 European Central Bank
  • 0:34 ECB HIstory
  • 1:54 Organization
  • 3:38 Scope
  • 4:44 Lesson Summary
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Lesson Transcript
Instructor: Christopher Sailus

Chris has an M.A. in history and taught university and high school history.

In this lesson, we explore the European Central Bank, an institution created to help implement the Euro that manages currency and financial transactions across the Eurozone.

European Central Bank

When was the last time you went to the bank? Likely it was to deposit a paycheck or even ask for a car loan, and you may have even seen someone you knew there. After all, banks are little hubs of communities, places nearly everyone uses and that can sometimes bring together the community.

Far larger and with a far greater role than your local bank, the European Central Bank was created as an entire global region - Europe - became more closely integrated. The rest of this lesson will detail just how the ECB was created and its functions today.

History

It's possible to assume that something like the European Central Bank would eventually be created in the European Union. After all, as early as 1962, the European Commission proposed that member states begin working toward total economic and monetary union between EU states. Only a decade later in 1973, the European Economic Community (as the EU was known at the time) implemented a system that connected its member states' currencies to one another to ensure trade balances but also pave the way for a future monetary union.

However, the first tangible steps toward monetary union between member states did not begin until the 1990s. As part of the 1992 Treaty of European Union (which also officially changed the organization's name to the EU), the EU set out definite rules for the implementation of a future, pan-European currency, the Euro. The Euro was implemented in 1999 for commercial and financial transactions, and in 2002, over 80 billion bank notes and coins were distributed across the EU in the largest monetary changeover in history.

Though several organizations existed before the European Central Bank, the ECB was instituted first in 1998 largely to handle the changeover to the Euro. The management of the European central currency has been its mandate ever since.

Organization

Unlike other EU institutions, like the European Commission or the European Parliament, the European Central Bank is completely independent of all other institutions. It answers to no larger European board in its management of currency affairs. In fact, it is highly illegal for any member of other EU institutions to try to influence the decisions made by the ECB.

The ECB itself is made up of three main bodies, the first and most powerful of which is the Executive Board. The Executive Board is comprised of six members, all appointed to 8-year terms by the various leaders of Europe. On the board there is a president, vice president, and four other active voting members. The Executive Board is the most powerful organization in the ECB, and in addition to setting the general priorities of the institution, the Executive Board and its staff is also in charge of running the daily business of the organization.

The second body of the ECB is the Governing Council. The Governing Council is in charge of the nitty-gritty details of the ECB's financial policy. It details and defines ECB monetary decisions and also controls interest rates between the ECB and commercial banks across the Eurozone. The Governing Council is composed of the Executive Board plus the 17 heads of the national banks of the countries that use the Euro.

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