The euro and European Central Bank

6/9/2015

The Euro and European Central Bank

Presentation by

Linda Muungani Halcyon Nqaba

ORGANISATION

The ECB is the central bank for Europe's single currency, the euro. It was established as the core of the Eurosystem and the European System of the Central Banks. It has legal personality under public international law.

Historical Stages of the Euro and ECB

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HISTORYTHREE STAGES TO ECONOMIC AND MONETARY UNION

– Stage 1:• 1.July 1990 – Abolition of all restrictions on the movement of capital

– Stage 2: • 1.January 1994 – Establishment of the European Monetary Institute

– Stage 3: • 1.January 1999 – fixing of conversion rates, ECB responsible for the monetary policy

Adoption of the EuroSince 1 January 1999 Europe has had a

new currency, the euro. On that date the euro replaced the national currencies of 11 countries: , Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland. On 1 January 2001 it also replaced the national currency of Greece.

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TO date the Euro is used in Austria Greece Belgium Ireland Cyprus Italy Estonia Latvia

Lithuania Luxembourg

Malta The Netherlands

Portugal Slovenia

Slovakia Spain

Finland France Germany05/02/23

These 19 countries are known collectively as the euro area or the EUROZONE, 9 of the European Union

(EU) Member States have not yet adopted the euro: Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden and the United Kingdom. Low interest rates due to a high degree of price stability

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Benefits of the Euro1. Low interest rates due to a high degree of price stabilityThe euro is as stable and credible as the best performing currencies previously used in the euro zone countries. This has established an environment of price stability in the euro area, exerting a moderating influence on price and wage-setting.

Benefits of the Euro -cnt’nd

2. More price transparencyPayments can be made with the same money in all countries of the euro area, making travelling across these countrieseasier. Price transparency is good for consumers since the easy comparison of price tags makes it possible for consumers to buy from the cheapest supplier in the euro area.

Benefits of the Euro cnt’nd3. Removal of transaction costs The launch of the euro on 1 January 1999 eliminated foreign exchange transaction costs and thus made possible considerable savings. Within the euro area, there are no longer any costs arising from:• buying and selling foreign currencies on the foreign exchange markets;• protecting oneself against adverse exchange rate movements;• cross-border payments in foreign currencies, which entail high fees;• keeping several currency accounts that make

account management more difficult.

Benefits of the Euro cnt’nd

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4.No exchange rate fluctuations

With the introduction of the euro, exchange rate fluctuations and therefore foreign exchange risks within the euro area have also disappeared. In the past, these exchange rate costs and risks hindered trade and competition across borders.

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European System of Central Banks– EurCentral Bank – all National Central Banks

Eurosystem– ECB– National Central Bank (in Euro area)

Euro area/zone – Countries which have adopted euro

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Why A system?

June 2015

There are three main reasons for having a system of central banking in Europe:

1. The Eurosystem approach builds on the existing competencies of the NCBs, their institutional set-up, infrastructure, expertise and excellent operational capabilities. Moreover, several central banks perform additional tasks beside those of the Eurosystem.

2. Given the geographically large euro area and the long established relationships between the national banking communities and their NCB, it was deemed appropriate to give the credit institutions an access point to central banking in each participating Member State.

3. Given the multitude of nations, languages and cultures in the euro area, the NCBs (instead of a supranational one) were best located to serve as access points of the Eurosystem.

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DECISION MAKING

Governing Council

Executive Board

General Council

The highest decision-making body of the ECB is the Governing Council. It consists of the six members of the Executive Board and the 19 governors of the national central banks of the euro area. Both the Governing Council and the Executive Board are chaired by the President of the ECB. The key task of the Governing Council is to formulate the monetary policy for the euro area. Specifically, it has the power to determine the interest rates at which commercial banks may obtain liquidity (money) from their central bank.

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The Executive Board of the ECB consists of the President, the Vice-President and four other members. All are appointed by common accord of the Heads of State or Government of the 19 countries which form the euro zone.

The Executive Board is responsible for implementing the monetary policy as formulated by the Governing Council and gives the necessary instructions to the national central banks for this purpose. It also prepares the meetings of the Governing Council and manages the day-to-day business of the ECB.

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The third decision-making body of the ECB is the General Council. It comprises of the President and the Vice-President of the ECB and the governors of all 28 national central banks of the EU Member States. The General Council contributes to the advisory and co-coordinating functions of the ECB and to the preparations for the possible enlargement of the euro area.

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TASKSBasic tasks

– Define and implement Monetary policy– Foreign exchange operations and manage foreign

reserves of Eurozone countries– Portfolio management– Payment systems

Further tasks– Issue Banknotes– Statistics(collect the necessary info from financial

institutions of member countries)– Financial stability & supervision– International and European cooperation

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INDEPENDENCE

Price stabilityEuropean Community institutions and

states have no influenceOwn budget (apart from EU

parliament)Prohibited for granting loans to

Community bodies and governmentsFunctionally independent

Halcyon Moyo

Price stabilityThe primary objective of the Eurosystem is to

maintain price stability in the euro area, thus protecting the purchasing power of the euro.

Ensuring stable prices is the most important contribution that monetary policy can make to achieve a favorable economic environment and a high level of employment. Both inflation and deflation can be very costly to society, economically and socially.

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Price stability (cnt’nd)

In order to make it easier for the public to assess the success of the single monetary policy, the ECB has announced a precise definition of its primary goal. Price stability has been defined as a year-on-year increase in consumer prices of below 2%.

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TRANSPARENCY

Central bank provides to public all relevant information-The ECB publishes a consolidated weekly financial statement of the Eurosystem.

Helps public to understand monetary policy- more credible and effective

CredibleSelf-disciplinedPredictable

Linda Muungani

June 2015

ACCOUNTABILITY

Precise reporting obligationsMonthly BulletinMonthly Press conferences Weekly Financial StatementAnnual Report – presented to

- European Parliament- Council of the European Union- European Commission- European Council

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EU ENLARGEMENTNew countries joined the EU on 1 May 2004

– Bulgaria and Romania are classified as acceding countries

– Negotiations with Croatia and Turkey

Joining the euro area– The new countries will adopt the euro– The current euro area members had to

fulfil the same criteria

ALJA NOVAK

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EU ENLARGEMENTCovergence reports

– The European Central Bank contributes to the decision-making on future euro zone members by preparing convergence reports

Participation in decision-making bodies– The Governors of the central banks of the

new EU contries are now members of the General Council of the ECB

Joining Criterialow inflation, sound public finances, low

interest rates and stable exchange rates. They must also ensure the political

independence of their national central banks. The fulfillment of these convergence criteria – known as the Maastricht criteria – laid a solid foundation for the new currency before it was launched.

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JOB OPPORTUNITIESOwn career developmentDifferent skills and knowledgeMany training programs

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TRAINING PROGRAM

Launguage coursesInter personal skillsTask-oriental skillsManagment and Leadership skills.Tailor made coursesExtra training program

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MOBILITY SCHEMES

MeetingsWorking methods and structures of

other European institutions

Halcyon

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JOB OPPORTUNITIES

Irrespective of:– age– religion– ethnicity

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