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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.
Nqaba & Linda
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.
June 2015
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
June 2015
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%.
June 2015
June 2015
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
Nqaba and Linda
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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
Nqaba halcyon
June 2015
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
June 2015
JOB OPPORTUNITIES
Irrespective of:– age– religion– ethnicity
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