European System Of Central Banks

on Tuesday, August 27, 2013

European System of Central Banks is a central organisation that is responsible for the monetary activities in the European Union. This organisation is accountable for any activity regarding the Euro which is the second most popular currency in the world. This system comprises of the European Central Bank (ECB) and National Central Bank (NCB) of the 28 members of the European Union. It also comprises of member states of the European Union that do not follow Euro as their main currency.

Prime Functions:

The main idea behind implementing a central or generalized currency or governing bodies is to maintain the economic equilibrium of the countries. Another main goal is to keep the inflation and deflation with respect to bearable levels in the countries of the European Union.

Classification in the European System of Central Banks:

European Central Bank: ECB is the controller of the monetary policies of the Euro currency and the 17 member states in the European Union (EU) that follows Euro as the currency. Precisely, it is the central bank for the countries in the European Union that follows their currency as the Euro. The countries in the EU that follows the Euro are collectively known as the Euro zone.

National Central Bank: NCB’s are national banks that are located in the countries that are constituent in the EU. National Central Banks in the member states combined with the European Central Bank (ECB) forms the European System of Central Banks (ESCB).

Governing bodies of the ESCB: There are three governing bodies in the ESCB with different functionality and varied levels of influence in the decision making of the monetary policies. They are The Governing Council, The Executive Board and the General Council.

The Governing Council: It is the primary governing body in the European System of Central Banks (ESCB). The Governing Council consists of the members of the Executive board and the governors of the NCB’s of the member states of the European Union.

•To devise the monetary policies and guidelines of the member states of the Euro zone.
•They are also responsible for deciding the major factors that influence the supply and reserves in the banks of the Euro zone.

The Executive Board: It has a President, a Vice President and four other members who experts in the monetary and banking fields.

• This board is responsible for the execution of the monetary policies and the decisions that are laid down by the Governing Council after proper evaluation.
• They also instruct the NCB’s and the ECB, and also ensure the adherence of the policies, guidelines that are erected by the Governing Council.

The General Council: This council is formed by the member states that have not adopted the Euro as the primary currency. They are allowed to devise monetary policies with respect to their government and monetary factors. But they have limited influence on the decision making in the ESCB.

•They provide valuable suggestions to the ECB regarding the policies and decision making.
•They are involved in gathering the statistical information and organizing the fiscal reports.
•They are responsible for laying down rules for accounting and reporting procedures in the ESCB and ensure the pursuance of the rules and policies of the ESCB.
•Currency exchange rates and the human resources in the ECB are also functions of the General Council.

These are the main governing bodies in the ESCB. This system ensures a smooth functioning and performance of the Euro currency. The capital stock of Euro Currency in the ECB is over 5 billion. The NCB’s of the countries in the EU have the full ownership of this capital and they are distributed by subscriptions. The subscriptions are designed by a key that is prepared with respect to the GDP of the countries in the EU. This is all about the functioning and the governing of the European System of Central Banks (ESCB).

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