Europe - European Central Bank

What does the ECB do?

The prime responsibility of the ECB is the maintenance of price stability. It is therefore responsible for setting monetary policy for all those countries that are part of the single currency. To maintain the single currency needs one interest rate. That rate is set by the Governing Council of the ECB who meet twice a month to discuss it.

Once they have set the interest rate it is mainly up to the National Central Banks to maintain that rate in their own countries. They do that by using 'open market operations'. The Banks make sure that there is a shortage of liquidity (in other words forms of money close to cash) in the system and they then provide the necessary liquidity on their terms.

The ECB is also responsible for managing the foreign exchange reserves of the euro area countries and conducting any necessary foreign exchange operations. They operate a minimum reserve system. All credit institutions in the euro area have to keep a minimum reserve with the ECB. This has currently been set at 2% of their liabilities. The rest of their work is anything that may help support the member countries of the Community. This may mean helping to establish efficient payments systems or helping to maintain the stability of the financial system.

The basic tasks that they carry out can be summarised as:

• to define and implement monetary policy for the euro area;
• to conduct foreign exchange operations and to hold and manage the official foreign reserves of the euro area countries;
• to issue banknotes in the euro area and
• to promote the smooth operation of payment systems.

Further tasks are:

• to collect statistical information either from national authorities or other financial institutions and
• to review developments in the banking and financial sector.