The European Central Bank System

Abstract

On May 3, 1998, European Union (EU) leaders took the most significant step toward European integration since the signing of the Treaty of Rome in 1957. They agreed, in substance, that monetary policy within the Union was no longer under the exclusive control of EU member states’ central banks, but was transferred to the Economic Monetary Union (EMU) of the European Union. The substance of monetary union is that most countries within the EMU no longer have distinct national currencies. A new currency - the euro (€) - has replaced nearly all national currencies. To qualify under the European System of Central Banks (ESCB), a member state should meet specific requirements: a high degree of price stability, sound public finances, a stable exchange rate, and stable long-term interest rates. The ESCB commenced operations on June 1, 1998, and assumed responsibility for the conduct of monetary policy for the euro area on January 1, 1999. The ESCB is headquartered in Frankfurt, Germany; and its present is Dr Mario Draghi,43 the former Governor of the Italian Central Bank. National central banks are the ESCB shareholders. Shares are based on the GDP and population of each member state. However, all states of the ESCB have the same powers of decision, regardless of their size and GDP, and best decisions are made to benefit all the states that use the euro.