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  1. #1
    Super Moderator Gulfstream's Avatar
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    European Central Bank (ECB)


    European Central Bank (ECB)

    ECB is an international credit and financial institution that unites the financial systems of the member-states of the Eurozone Union.
    The ECB is established with a goal to conduct a unified and independent policy of the member-countries of the European Union. Other important goal is to ensure the stability of currencies of the EU member-states and the prices within the territory of the Eurozone.
    ECB serves for creation of official currency reserves of the European Union, the organization of international lending and financial mutual assistance between the states of the European Union.


    Originally, the beginning of the creation of the ECB lies in the very roots of the creation of the European Union and the Eurozone itself (the Eurozone is a union of member-countries). The first proposals for European integration were expressed at the Paris Conference of 1867, but the proposal was not accepted, because only those countries, which could regulate their economies very well, could enter the zone of the union. After a period of time, only after the Second World War, when the countries of Europe realized that the development of the economy and the restoration of resources is possible only with the unification of efforts, Europe (Eurozone) started to be created. Thus, gradually signing one law after another, the countries began a close alliance. But as a consequence, whole structure of the association needed the central bank, the main goal of which would be to ensure the freedom of people in the financial world, goods, services and capital turnover.
    The European Central Bank, was established on June 1, 1998, where the best place to locate the headquarters of the city was the city of Frankfurt am Main. In addition to freedom of movement and services, the purpose of creating such type of bank was required by a few more reasons:
    - Facilitation of mutual settlements between the countries of the Eurozone;
    - stabilization of money exchange rates;
    - also the emergence of a single, stable and strong European currency that could compete with the dollar index in world markets.
    On 10-11th December, 1991 was enacted the Maastricht Treaty, with a purpose to consolidate the goals and ways of creating the Economic and Monetary Union. Maastricht Treaty entered into force on February 7, 1992, in Maastricht (the Netherlands). This contract envisaged the creation not only of an Economic and Monetary union, but also a political alliance between the countries involved.
    After signing it, the countries of the European Union (EU) have moved to conduct general economic and financial policies, the ultimate goal of which was announced the introduction of a single currency for the countries of the Eurozone.




    On 1st January 1999, the European Central Bank assumed responsibility for the conduct of monetary policy for the member countries. Before the transition to the "euro" all the candidate countries of the Eurozone were obligated to fulfill a few conditions on the convergence of the economy of each member-country. The purpose of these conditions wasto ensure economic and legal prerequisites that would successfully take part in the activities of the Euro zone monetary union aimed at achieving price stability.
    Despite initial expectations, the formation of the Monetary Union was subjected to significant trials. In 1992-1993, the European currency suffered severe crisis moments. After that, such countries as Spain and Portugal were heavily devalued, Britain and Italy entirely withdrew from the EU zone. To solve crisis situation, it was decided to increase the permissible limits of currency fluctuations to 15%. After such fluctuations in the structure, some countries called for an exit from the Eurozone. There was a difficult period and only in January 1994 and soon was established a currency institute, which was transformed into the European Central Bank in 1998.

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    Last edited by Gulfstream; 06-17-2018 at 07:14 PM.

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    Super Moderator Gulfstream's Avatar
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    The distribution of incomes of the ECB.

    The Governing Council of the ECB determines its assets in accordance with its guidelines. The income of national banks is distributed at the end of each fiscal year. The fiscal year of the ECB and national central banks begins on the first day of January and ends on the last day of December. The amount of income of each central bank can vary by any percentage of the amount paid by the central bank. The ECB's capital is 5 billion Euros. If it is necessary, the capital may be increased by a decision of the Board of Governors, acting by a qualified majority, within the limits and in accordance with the conditions established by the Council in accordance with the procedure. Similarly, the Board of Governors can decide on reimbursement of costs to any of the central banks, as a result of the issuance of banknotes. The repayment is also carried out in the form, which will be established by the Board of Governors.

    The amount of income is distributed to the Central Bank in proportion to the paid shares of these banks:


    - the amount determined by the Board of Governors, which can not exceed 20% of net profit, is transferred to the general reserve fund with a limit of 100% of the capital;
    - the remaining net profit is distributed among the holders of the shares of the Central Bank of Europe in proportion to the shares paid by them.
    If there is recorded a loss, it is covered from the general reserve fund of the ECB, and if it is necessary, the Board of Governors can cover the loss from assets for the relevant fiscal year or mandatory reserves. So the ECB must have mandatory reserves.
    Article 19 (Minimum reserves)
    19.1. Subject to Article 2, the ECB may require credit institutions established in Member States to hold minimum reserve on accounts with the ECB and national central banks in pursuance of monetary policy objectives. Regulations concerning the calculation and determination of the required minimum reserves may be established by the Governing Council. In cases of noncompliance the ECB shall be entitled to levy penalty interest and to impose other sanctions with comparable effect.
    19.2. For the application of this Article, the Council shall, in accordance with the procedure laid down in Article 42, define the basis for minimum reserves and the maximum permissible ratios between those reserves and their basis, as well as the appropriate sanctions in cases of non-compliance.
    In recent time the Euro has been suffering a certain financial and economic crisis since 2012 and, as it was mentioned above, was introduced the QE program, which during its work brought the ECB a profit of up to € 1.2 Billion. The European Central Bank recorded a profit growth on the background of an increase in interest income. The ECB's balance sheet currently stands at € 349 billion, compared with € 257 billion a year earlier - the amount has increased by more than a third for the year. But the amount of write-offs last year increased more than twice - from € 64 million to € 148 million - against the background of a fall in the market value of dollar-denominated securities.

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  3. #12
    Super Moderator Gulfstream's Avatar
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    Composition of the Central Banks, belonging to the ECB

    As it is already known, the ECB includes the Central Banks of the member countries. The ECB has unified the banks of such countries as:


    • Bank of Belgium.
    • Bundensbank.
    • Bank of Greece.
    • Bank of Spain.
    • Bank of France.
    • Monetary Institute of Luxembourg.

    But the legal status has only the European Central Bank, all other Central Banks within the structure play only the role of auxiliary units and carry out secondary tasks. Indicators of the ECB are the index of prices for consumer goods throughout the EU and the size of the money supply, the growth of which during the year should not be more than 4.5%.

    The only thing that affects the European monetary system is the ECB refinancing rate.


    it follows herefrom, that the main tasks of the ECB are the duties of providing:
    -Stability of currency in the EU;
    -Maximal simplification of convergence processes.
    If the monetary system is stabilizing, then it provides a good growth strategy, as well as a stable systematization of foreign exchange and economic relations of an international character.

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    Conclusions.

    After the Second World War there were very difficult economic, financial and political times that required colossal changes in the countries of the Eurozone. And due to the wisdom of all countries, was created an alliance of countries, which could ensure the stability of each country of the Eurozone project participant. Because for overall stability, it was necessary to make fatal steps, the union of the countries decided to form their own intra-zone currency, which could enter the international currency market and compete with large countries. Also one of the goals was to make a currency that rivaled the Dollar, which could also be the reserve currency of the world.
    But up to date, the Dollar remains the most demanded currency of the entire world, which is paid on the world market. Despite the fact, that the ECB includes the numerical banking structures of strong countries, the economic situation difficultly keeps stable under the impact of global obligations. But due to the Governance of the ECB, quite strong steps are being taken, that still make the dollar slightly weaken its index in the world market and thereby increase the financial and economic and political state of the countries of the Euro zone participants to a higher and stable level. If you review the functioning of the QE program, you can see that it is paying off and the ECB is starting to recover a little and get a significant profit from this program. Since the stabilization of the Euro is not yet quite constant, at the current moment, the QE program has not been curtailed.
    It can be mentioned, that the Euro is quite a strong competitor in the world market, but given the lack of stability of the states and the fast-moving desire to withdraw from the Eurozone, the Euro as the ECB itself can incur strong financial and economic losses.
    Looking globally, you can see that the members of the Eurozone, all the countries, made strong reforms in their economy, lost their national currency, and now, after experiencing another crisis, after many years of cooperation, they come to the conclusion to exit from the EU. What makes us think that the structure of both the EU and the ECB's financing system is not stable and has a lot of shortcomings, which is a threat of the fall of the Euro as a currency in the world economy. Despite of the fact, that in 2007 it was planned that the Euro would be the main world currency and could completely replace the dollar, it still remains the most demanded currency of the entire international market. These plans are still remaining only plans.

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  5. #14
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    This is a very good thread and and it is highly educative because most of us here just hear about the ECB but we never knew much about the history of the bank. You have given detail about what we need to know because knowledge they say is power and if we are trading the forex market and we do not understand what we are trading, then we are doing things like novices and there are many of us here, we have to make proper research about the business that we are doing so that we can become experts in the market.Forum like this is where we get to know so much about this market.

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  6. #15
    Trader Yayami's Avatar
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    Quote Originally Posted by Gulfstream View Post
    But up to date, the Dollar remains the most demanded currency of the entire world, which is paid on the world market. Despite the fact, that the ECB includes the numerical banking structures of strong countries, the economic situation difficultly keeps stable under the impact of global obligations.
    still good information for Euro because at least it has become one of major currencies which play big role in world market. i don't know much history about ecb or eurozone and all of the information i read in this thread are all new to me. so it's now clear to me that those countries try to unite to form an alliance and make euro as their main currency. i think if euro able to control market over its strong value of currency there'll be chances to change us dollar with euro as new demanded currency of the entire world.

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