week nine Flashcards
central banks and the money supply process
what roles does the central bank play throughout the world
regulate the value of the
national currency, financing the government, and acting as a
‘lender of last resort’ to banks suffering from liquidity and/or
credit crises
what are the arguments for public ownership of the central bank (3)
- Act in the ultimate public interest
- Private ownership bias central banks toward self-serving profitmaking interests, hence increasing risk-taking and balance sheet troubles
what are the arguments for private ownership
- guarantees central bank independence
- restricts the distribution of dividends per share
- – private owners are required to recapitalize the central bank in
the case of losses which lifts this burden off the fiscal budget - more accountable helps with the misuse of certain policies as political response
- reduced goverment interference
when did the European central bank exist
European Central Bank (ECB) came into existence on June 1, 1998, to handle the transitional issues of the nations
that comprise the Eurozone
who has to comply with the ECB
- All of the member states of the European Union have to comply with a set of economic and legal conditions
- The creation of the Eurozone and of the new supranational institution, the ECB, was a milestone of European integration
As of 2017 what is the state of the euro system
- the euro system has now 19 countries out of the 27 member states of the EU have joined the euro area which compromises of the ECB and the NCBN
Who owns the capital stock of the ECB?
The capital stock of the ECB is owned by the central banks of the current 27 EU member states.
How is the balance sheet of the ECB held?
The balance sheet of the ECB, including its assets and liabilities, is held by the National Central Banks (NCBs).
How are the shares of the NCBs in the total capital stock of the ECB determined?
The shares of the NCBs in the total capital stock of the ECB are weighted according to the shares of the respective member states in the total population and GDP of the EU.
How often does the ECB adjust the shares of the NCBs in its total capital stock?
The ECB adjusts the shares every five years and whenever a new country joins the EU.
Which central banks hold the highest capital key percentages of the ECB’s capital?
The highest capital key percentages of the ECB’s capital are held by the Deutsche Bundesbank and Banque de France.
Who are the main decision making bodies of the ECB
- the governing council
- the executive board
- the general council
what does the European system of central banks promote
promotes monetary and financial cooperation among the 27 member states and the ECB and the 19 national central banks
What is the main function of the Governing Council of the ECB?
The main function of the Governing Council of the ECB is to conduct monetary policy with the primary objective of maintaining price stability in the euro area.
Who chairs the Governing Council of the ECB?
The Governing Council of the ECB is chaired by the ECB president
How often does the Governing Council of the ECB meet?
The Governing Council of the ECB meets in Frankfurt on a fortnightly (every two weeks) basis.
When does the Governing Council of the ECB decide on monthly monetary policy decisions?
At the beginning of each month, the Governing Council of the ECB decides on the monthly monetary policy decisions in accordance with the economic and monetary developments in the Eurozone.
How are the Euro area countries divided in terms of voting rights in the ECB?
Euro area countries are divided into groups based on the size of their economies and the ranking of their financial sectors. The Governors from the five largest countries (Germany, France, Italy, Spain, and the Netherlands) share four voting rights, while the remaining 14 countries share 11 voting rights.
What is the responsibility of the Executive Board of the ECB?
he Executive Board of the ECB is responsible for the day-to-day operations and management of the ECB and the Euro system
How many members comprise the Executive Board of the ECB?
The Executive Board of the ECB comprises six members
Who are the members of the Executive Board of the ECB?
The Executive Board of the ECB includes the president and the vice-president of the ECB, as well as four other members who take decisions in their personal capacity.
What is the composition of the General Council of the ECB?
The General Council of the ECB comprises the president and the vice-president of the ECB, along with the governors of the National Central Banks (NCBs) of the 27 EU member states.
What is the main task of the General Council of the ECB?
The main task of the General Council is to encourage cooperation between the National Central Banks of the member states of the EU.
What functions does the General Council of the ECB perform?
The General Council performs important advisory functions such as collecting statistical information for the ECB, preparing the ECB’s annual reports, and standardizing the accounting and reporting operations of the NCBs.
According to the Statute of the ESCB and the ECB, when will the General Council be dissolved?
he General Council is a transitional body that will be dissolved when all EU member states have introduced the single currency.
what are the three man objectives of the ECB
- maintain price stability in the economics of the EU
- support the economic policies of the eurozone nations
- ensure an independent and open market economy
What the ECB want to maintain
As price stability is important for attaining economic growth and job creation, the ECB endeavours to maintain its independence from governments
What is the primary objective of the ECB’s monetary policy?
The primary objective of the ECB’s monetary policy is to maintain price stability, aiming for a medium-term inflation rate of close to 2%.
What are the three key policy interest rates set by the Governing Council of the ECB?
The three key policy interest rates set by the Governing Council of the ECB are the deposit facility rate, the refinancing rate, and the marginal lending facility rate
What unconventional monetary policy measures has the ECB introduced since September 2008?
Since September 2008, the ECB has introduced unconventional monetary policy measures including emergency liquidity assistance (ELA), quantitative easing (QE), and negative interest rate policy (NIRP).
What is the purpose of quantitative easing (QE) as a monetary policy tool?
Quantitative easing (QE) is a monetary policy tool used by central banks to increase money supply and stimulate the economy by purchasing sovereign bonds and other financial assets from commercial banks and financial institutions.
How does the ECB conduct monetary policies such as quantitative easing?
The ECB assigns the tasks of conducting monetary policies such as quantitative easing to the central banks of the Eurozone countries. For example, the 19 National Central Banks (NCBs) are tasked with buying bonds in their respective sovereign bond markets as part of the quantitative easing program.