The European Central Bank (ECB) was established on 1st of June, 1998 by the European Union. Its headquarters are in Frankfurt, Germany. It is among one of the most important central banks of the world. It covers the 16 member States of the Eurozone, and holds the responsibility for monetary policy. In principle the forerunner of ECB was the European Monetary Institute (EMI). Though, with respect to design and importance, ECB is actually the successor of the German Bundesbank.
At the beginning of the second stage of the Economic and Monetary Union (EMU) of European Union, the EMI was established in order to prepare for the creation of the ECB, European System of Central Banks (ESCB), and to manage the intermediary issues of the States taking on board the euro.
The EMI was officially replaced with the ECB by the benefit of the Treaty on European Union on 1st June, 1998. However, it did not put its full power into affect until the initiation of the euro on 1 January 1999. This indicated the third stage of EMU.
The chief objective of the ECB was to keep the price steady within the Eurozone. It is the responsibility the ECB to outline, and execute the monetary policy for the Eurozone, to manage foreign exchange operations, to care for the foreign reserves of the European System of Central banks, and to advance smooth operation of the money market infrastructure.
The ECB has total control to approve issuance of euro banknotes. Even though the other states can supply euro coins, yet the authorisation of the amount is controlled by the ECB in advance. The ECB must work as a team with the EU, and with third parties and units, internationally. It contributes in keeping the stability of the financial system, and supervises the banking sector.
The ECB comprises of a Governing Council, Executive Board, and a General Council. It is an independent institute, and is assigned a separate budget obtained from national central banks. The Governing Council is the ultimate decision-making unit of the ECB.
The Executive Board holds the responsibility of running the bank, and for the execution of the monetary policy that is outlined by the Governing Council. It comprises of the President of the Bank, a vice president and four other members. These members are appointed by the member states for the period of eight years. The General Council is responsible for transitional issues like maintaining the exchange rates of currencies until all the member states adopt the euro. After which, it will be dissolved.
The first president of the European Central Bank was Wim Duisenberg, who was the former president of EMI. The French disagreed with Duisenberg to be the president, as they thought that if the ECB was located in Germany its president should be French. This dispute was settled in a noble way according to which, at the end of the mandate of Duisenberg at November 2003, Jean-Claude Trichet who was a Frenchman would replace him. Trichet is the current president of the ECB.
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