The European Central Bank was established on 1st January 1998 and is headquartered in Frankfurt, Germany. The European Central Bank replaced the European Monetary Institute in June 1998. The European Monetary Institute was created by the Maastricht Treaty to prepare for the establishment of a transnational central bank, and a common monetary policy.
The European Central Bank is responsible for issuing the Euro as a common currency, defining the broad monetary policy of the Euro area, and making the necessary decisions for its implementation. That is, to keep the purchasing power of the Euro, and thus safeguard price stability and value in the region, which currently includes the 17 countries of the European Union introduced into the Euro since 1999.
The European Central Bank was based on the model of the German central bank, the Bundesbank, which was largely the creation of German ordo-liberals, who were a group of post World War II West German economists. The Bundesbank concept revolved around a market based economic system within a State created regulatory framework. The goal was to stimulate economic competition and maintain free markets that operated within a strong social, political and moral framework.
The European Central Bank is one of the seven central European Union institutions. Its main duty is to keep inflation under control and thereby stabilise prices, particularly within the Eurozone. The European Central bank ensurers that financial institutions and markets are properly supervised in order to maintain financial equilibrium. The European Central Bank works within the central banking system, which comprises the major banks in each of the 28 European Union countries. The European Central Bank’s mandate includes:
- Regulating key Eurozone interest rates, and managing the supply of money to the zone.
- Supervising the Eurozone foreign currency reserves, and trading currencies as necessary to balance exchange rates.
- Tracking price trends and evaluating the risk to price stability.
- Helping to ensure that payment systems operate smoothly, and overseeing the appropriate supervision of financial institutions and markets by national authorities.
- Authorising central banks to issue Euro banknotes.