The European Central Bank (ECB) serves as a pivotal institution within the Eurosystem and the European System of Central Banks (ESCB), also standing as one of the seven institutions of the European Union. It holds a crucial position globally as one of the most significant central banks in the world.
Operating through the ECB Governing Council,...
The European Central Bank (ECB) serves as a pivotal institution within the Eurosystem and the European System of Central Banks (ESCB), also standing as one of the seven institutions of the European Union. It holds a crucial position globally as one of the most significant central banks in the world.
Operating through the ECB Governing Council, this institution shapes monetary policy for both the Eurozone and the European Union. It manages the foreign exchange reserves of EU member states, conducts foreign exchange operations, defines intermediate monetary objectives, and sets key interest rates for the EU. The ECB Executive Board, on the other hand, implements the policies and decisions formulated by the Governing Council and may issue directives to national central banks accordingly. Moreover, the ECB exclusively authorizes the issuance of euro banknotes, while member states require ECB approval for the volume of euro coins they wish to circulate. Additionally, the ECB oversees the operation of the TARGET2 payments system.
Established in May 1999 by the Treaty of Amsterdam with a core aim of ensuring and upholding price stability, the ECB gained official EU institution status with the implementation of the Treaty of Lisbon in December 2009. Initially formed to serve eleven members in the Eurozone, the ECB has seen expansion as more countries joined over time. Greece joined in 2001, followed by Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014, Lithuania in 2015, and Croatia most recently in 2023. Currently, the ECB's presidency is held by Christine Lagarde, and its headquarters are situated in Frankfurt, Germany, having previously been housed in the Eurotower before the construction of its new seat.
Governed directly by European Union law, the ECB's capital stock, valued at €11 billion, is collectively owned by the 27 central banks of EU member states as shareholders. The initial capital allocation was determined in 1998 based on population and GDP figures of the states. However, adjustments to the capital allocation key have been made since then. Importantly, shares in the ECB cannot be transferred or utilized as collateral.
PMI stands for Purchasing Managers' Index. It is an economic indicator used to measure the economic health of the manufacturing and services sectors within an economy. PMI is calculated based on survey data collected from purchasing managers in various industries, assessing factors such as new orders, production,...
PMI stands for Purchasing Managers' Index. It is an economic indicator used to measure the economic health of the manufacturing and services sectors within an economy. PMI is calculated based on survey data collected from purchasing managers in various industries, assessing factors such as new orders, production, employment, supplier deliveries, and inventories.
A PMI reading above 50 typically indicates expansion in the sector, signaling economic growth, while a reading below 50 suggests contraction. PMI data is closely monitored by investors, analysts, and policymakers as it provides insights into the current and future economic conditions, helping in decision-making related to investments, policy changes, and business strategies.
The Federal Reserve System, often referred to as the Federal Reserve or the Fed, serves as the central banking system in the United States. Established on December 23, 1913, through the Federal Reserve Act, its formation was prompted by financial crises, notably the panic of 1907, which highlighted the necessity for centralized control over the...
The Federal Reserve System, often referred to as the Federal Reserve or the Fed, serves as the central banking system in the United States. Established on December 23, 1913, through the Federal Reserve Act, its formation was prompted by financial crises, notably the panic of 1907, which highlighted the necessity for centralized control over the monetary system to mitigate economic turmoil.
Originally tasked with three main objectives outlined in the Federal Reserve Act—maximizing employment, stabilizing prices, and moderating long-term interest rates—the Fed's responsibilities have significantly expanded over time. Events like the Great Depression in the 1930s and the Great Recession in the 2000s contributed to broadening its roles.
These days, the Federal Reserve System's duties encompass not only overseeing and regulating banks but also ensuring financial system stability and offering financial services to depository institutions, the U.S. government, and foreign official institutions. Furthermore, the Fed conducts comprehensive economic research and produces various publications, such as the Beige Book and the FRED database.
The structure of the Federal Reserve involves multiple layers. At its core is the Federal Reserve Board (FRB), consisting of presidentially-appointed governors. Alongside this, there are twelve regional Federal Reserve Banks located across the country, responsible for supervising privately-owned commercial banks. Nationally chartered commercial banks are required to hold stock in their respective regional Federal Reserve Bank and can participate in the election of some board members.
Monetary policy decisions are made by the Federal Open Market Committee (FOMC), which influences market interest rates by adjusting the target for the federal funds rate. This rate subsequently impacts economic activity across the United States. Comprising all seven members of the board of governors and twelve regional Federal Reserve Bank presidents, the FOMC consists of five rotating voting members. Notably, the U.S. Department of the Treasury, an entity external to the central bank, is responsible for printing the nation's currency.
While the salaries of the board's seven governors are set by the federal government, the Federal Reserve System's profits are transferred to the U.S. Treasury after dividends on member banks' capital investments are paid, maintaining an account surplus. Despite being an entity of the U.S. government, the Federal Reserve considers itself an independent central bank due to its autonomy in making monetary policy decisions without requiring approval from the president or other branches of government. Additionally, it operates without funding appropriated by Congress, and the terms of board members span across multiple presidential and congressional terms.
