How and why is money printed
European Central Bank in Frankfurt: Money is printed here
There are many central banks: the American central bank system or Fed, the Swiss National Bank or the Chinese People's Bank. However, there is a special central bank, namely the European Central Bank or ECB, in the European Union. The ECB, as the body of the European Union, has been responsible for monetary policy in the entire EU area since 1998 - in other words, since 2013 for 28 countries.
However, it is only the ECB and the individual national central banks that form the so-called European System of Central Banks (ESCB), whose main task is the monetary policy of the European Community. However, the ESCB includes all EU countries, including those that have not introduced the euro as a currency.
The so-called Eurosystem, on the other hand, consists of the ECB and the national central banks of the euro countries. In this respect, the European Central Bank performs most of the tasks of the ESCB (and the Eurosystem), while the national central banks are no longer solely responsible for monetary policy. However, they have not completely lost their importance, but ultimately act as the executive bodies of the ECB - such as the Deutsche Bundesbank.
Not only as a private investor should you know how the ECB is composed and, above all, what its monetary policy strategy looks like. After all, every change in monetary policy makes itself felt on the European and even international money markets - and thus also determines the success of investment products.
European Central Bank in Frankfurt: The composition
In addition to the national central banks, the ECB has three important organs. The Executive Board of the ECB is the “managing director” of the ECB, which means that it takes care of the business and ensures that the national central banks implement the decisions of the ECB's Governing Council. It consists of the President of the ECB, the Vice-President and 4 other members.
The Governing Council, as the highest decision-making body, in turn consists of the members of the Executive Board and all presidents of the national central banks who participate in the euro. Both the monetary policy guidelines and the key interest rates are set by the Council. In addition, the Governing Council provides the central bank money.
In addition to the Council, there is also the General Council of the ECB. This consists of the President, Vice President and all presidents of the national central banks - not just those of the euro countries. The General Council mainly discusses whether other countries will participate in monetary union.
The monetary policy of the ECB
As early as 1998 - when it was founded - the monetary policy strategy of the ECB was defined. So their primary goal is price level stability. For this purpose, the so-called harmonized consumer price index (HICP) was created, i.e. an EU consumer price index.
This is based on an annual shopping cart with various everyday goods. This is how price increases for these goods - and thus also an increase in the inflation rate - are calculated.
The ECB is aiming for the HICP to grow below 2% if possible. However, the increase should not deviate too much from the 2% mark, otherwise the risk of deflation increases. Accordingly, the Governing Council is pursuing the goal of maintaining an inflation rate of around 2% in the medium term.
The ECB follows a two-pillar concept in order to achieve this inflation target. The concept consists of economic and monetary analysis. This means that first - as the first pillar - the inflation development and its factors are observed. The factors include, for example, wages and salaries, long-term interest rates and various price indices.
As a second pillar, the ECB then monitors the development of the money supply, because excessively high growth in the money supply is an indicator of inflation risks. In this respect, the ECB is aiming for a growth in the money supply of around 4.5% per year. Depending on what the analysis reveals, the ECB can either pursue an expansionary or a restrictive monetary policy.
In a bad economic situation with low economic growth, the risk of inflation is lower. Accordingly, the ECB can lower key interest rates or buy up securities from commercial banks and thus supply them with money. This allows commercial banks to lend more and lower interest rates, which means that citizens invest and consume more.
In this way, the economy - in the course of this expansionary monetary policy - should be stimulated again. In contrast, with a restrictive monetary policy, interest rates are increased and thus fewer loans are granted, and consumption declines. Such a policy is intended to lower the inflation rate again.
Ultimately, it is up to the ECB to decide which pillar or analysis to weight more and which monetary policy it operates accordingly.
No more fun! Now the stock markets are waking up - deflation or inflation? Above all, it is important that you keep your cash quota high. Then you can also shop cheaply with clear setbacks. > read more
- Crowdfunding has subsided
- How does your teacher teach
- There are many mosquitos in Singapore
- What are the most unusual archaeological finds
- Why do we need politicians
- What are the valence electrons of Ni
- The United States is stealing oil from Syria
- What is the economy in Myanmar
- How does Google search for an image
- What do we learn in Genesis 2
- How much do ads cost on Instagram
- How does cholesterol rise
- Data science jobs have high salaries
- Which blood sugar level is dangerous
- What is User Generated Content Marketing
- Is Oceanspray Cranberry Juice good for your health
- How do you cure multiple personality disorders
- What is the oldest Bible
- Can thin people get diabetes
- What is the best school in singapore
- How much does a parachute cost
- What is 15 out of 100
- Do you respect your husband
- How was your HPCL 2018 interview experience