The European Central Bank

Since we have the Bank of England in the UK, you might wonder what institution plays a similar role with regard to the Euro in so-called 'Euroland'.

The answer is that, unsurprisingly, the institution with this particular responsibility is called the European Central Bank, or ECB for short.

It is extremely independent, and this independence was codified right at its inception as guaranteed by article seven of its treaty.

The structure is similar to both the Fed and the predecessor to the ECB which was the Bundesbank.

It has a governor and five executives.

So what is the purpose of the ECB as in what is it supposed to do and achieve?

Well the key idea is that it should be there to achieve price stability, which of course is crucially important for any money market to be able to work on a long term basis... too much fluctuation gives unworkable uncertainty in any economy or currency.

This is targetted through the figure of inflation, and the level of a target of price inflation of 2% or less. There are also some broader indicators and targets, but this is the key measure that was put in place.

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