ECB Definition – What is behind it? – Explanation

The European Central Bank (ECB) – Definition and Explanation

As Investor on the Stock exchange is it already hard enough, yourself through the Thicket of Technical terms and Key figures to struggleOnce You enter the Securities market but better know and master, come already new Challenges for you coming upDecisions from Central banks hold the Investors always again and again in Breath, determine them but about Interest rates and inflation. The after, how the own Portfolio set up is, can this considerable Influence on the selected Securities haveReason enough, that me in this Article a more detailed Look at the European Central Bankshort ECB – throw and explainwhat exactly their Tasks are.

The European Central Bank has its Headquarters in Frankfurt am Main.

The ECB – what is that?

The European Central Bank has its Headquarters in Frankfurt am Main and is a Organ of the European Union. It is for the Monetary policy in the Euro area responsibleWhile other Central banks such as the Federal Reserve in America only for a Country responsible are, includes the Territory of the ECB all Countries that adopt the euro as official Currency have. In Cooperation with the respective National banks ensures the ECB for a secure Euro and a stable Inflation.

The Story of the ECB

The History of the ECB is closely with the Process of the european Coalescence linkedOne could therefore this Place at the Foundation of the Montanunion in the Year 1951 beginthe Development of the ECB presentAt this Place limit we ourselves however to the Essentials. But also then is a Time jump to the Year 1988 necessary. The European Council had at that time already the Goal, a so-called Economy– and Monetary Union to buildFor this was first a free Movement of goods within the European Economic Community decided. From 01 July 1990 belonged therefore lengthy Customs controls and many other bureaucratic Barriers of the Past an.

The Precursor of the European Central Bank was then finally on 01 January 1994 founded the European Monetary Institute (EMI) was from the Baptism launchedWith it was already an important Step towards to a common european Currency donefurther Points have been in the next next Years setYear of birth of the ECB is the Year 1998. You is with it as Institution very much younger than its Counterparts in America or England.

The last – and perhaps most importantStep was in the Year 1999 done. On 01 January was the euro as official Currency in eleven of the 15 Member states introducedThus was the ECB also at the same time the Patron via the european Monetary PolicySince this Birth are eight other Countries have been added.

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Which Tasks has the European Central Bank?

In the Treaty to the Foundation the European Community were the Tasks of the European Central Bank precisely defined. Main task of the ECB is according to this before primarily the Implementation of the EU established Monetary policyJust the general Price stability stands here in the Foreground. The ECB tries thus before primarily, a possible Fluctuation of the Monetary value as well as a possible Inflation as possible low orstable to keepFurther can the European Central Bank Influence on the economic Development of a Country takethis should as possible balanced and “organicallyas possible. A Recession should avoided be avoided. Most important Instrument of the ECB is the so-called Key interest ratewhich they for the Lending money to a National bank requires. Higher Interest rates give the Banks then also to the Customers further. A Borrowing will then unattractivewhich reduces the Money supply in the Economic cycle reduced. At lower Interest rates is it attractive, withforeign Money” to invest. The cranks up although the Economy it is but also more Money in In circulation (“Inflation”).

The European Central Bank has but still other Tasks to to fulfill. To mention are here before especially the following:

It conducts Foreign exchange transactions through
It is for the Administration of the Foreign exchange reserves of the individual Countries responsible
They approves the Output of Euro bills
It has the Supervision over Credit institutions and carries thus to the Stability of the Financial market at
They creates a so-called Central Bank Balance Sheet

The Organs of the ECB

The exact Structure of the ECB is quite simple to understand. It has has two Decision-making bodies: the Council and the Extended Council. The executive Bodies of the ECB are the individual National banksTogether with these forms the ECB forms the so-called European System of Central Banks” (ECB)Important to understand is, that the respective National banks directly the ECB are subordinate and not the respective State Governments.

But how is the European Central Bank internally structured? The so-called Directorate acts as executive Body Within the ECB there is there are but other Instances:

President / President of the ECB: The President or the President of the ECB stands at her Head and represents them to externallyAt the same time is the President Chairman of the Board of Directors. The European Council is for the election of the President responsibleAccording to eight Years ends this Term, a Re-election is not possible. The Frenchwoman Christine Lagarde is since 2019 in the Office.
The Board of Directors: The Board of Directors is for the Management of the ECB responsible and ensures ensures, that the respective National banks the Requirements implement. The President / the President has at this Body the ChairIn addition is also the direct Deputy of the President and four other Members in this Body represented.
Governing Council: This body comprises the Members of the Management Committee and all Presidents of the respective Central Banks (within the Monetary union). The ECB – Council is in first Primarily a deciding Body and sets important Decisions such as for example the Amount of the Key interest rates or the general Monetary policy of the ECB Contents of the Council are mostly confidential, can but also published be.
The Extended Council: The Enlarged Council of the ECB complements the “simple” Council by all Presidents of the National Banks of EU – Member Statesalso from those Countrieswhich still not to the euro switched are. This institution raises before especially important Data and evaluates these evaluates. To him comes an important Advisory function at the Recording of other Countries into the Monetary union to. This Body exists only so longuntil all EU – Member States the Euro introduced have.

ConclusionBasic knowledge on the Stock Exchange

The Decisions of the ECB have Influence on Your Activity as Private investor on the Stock exchange. Per according to Investment horizon cannnen these Effects but more severe or lighter to Weight fall Put You Your Money via 20 years in in a broadly diversified Portfolio, are the Resolutions rather a Drop on the hot Stone. And nevertheless will we also in the Everyday life by the Decisions of the Central bank influencedJust the low Key interest rate of the last Years concerns before especially the thrifty Contemporaries. The Banks give the low Interest rates to their Customers moresupposedly safe Savings investments throw therefore hardly still Profits and are by the Inflation over Years and Decades always less worth. So remains for Private individuals only remains the Step to the Stock exchangein order to itself itself a good Retirement provision at create. So or way: The Knowledge about the Tasks of the ECB belongs to the Fundamentals on the Stock exchangeAlthough should You should a Decrease or Increase of the Key interest rate not panic react, however is it essentialthe Basics of our Economic cycle to understand Much Fun at the Application Of your new Knowledge.

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