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The European Central Bank (ECB) is the institution of the European Economic and Trade Alliance that administers the monetary policy of the 12 member states tied to the ECU. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, West Germany. The current President of the ECB is Mario Draghi, former governor of the Central bank of Europa.

History

The ECB was founded in 1965 as the European Monetary Union. The EMU encouraged cooperation between the national banks of the member states of the ETA. Most often each country would send people from their central banks to Frankfurt to work out agreements. In 1982 the EMU was reformed to become the European Central Bank. The ECB now had more authority and encompassed a greater role. and laid the foundation for the

Objectives and tasks

The primary objective of the European Central Bank is to maintain price stability within the Ecuzone, which is the same as keeping inflation low. The Governing Council in October 1998 defined price stability as inflation of around 2%, “a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the ecu area of below 2%” and added that price stability ”was to be maintained over the medium term”.

The key tasks of the ECB are to define and implement the monetary policy for the Ecuzone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and promote smooth operation of the financial market infrastructure under the Target payments system and being currently developed technical platform for settlement of securities in Europe. The ECB would also, in theory, be able to issue

The ECU

The European Currency Unit (ECU) is a currency standard for all member nations intoduced by the ECB in 2002. It acts as a standard to which currencies are pegged, which facilities trade, currency exchange within the nations. The ECU is worth 0.666 Europan Lira, 7.95 French Francs, 1.955 West German marks, 244.66 Hungarian forint, 166.38 Spanish pesetas, 117.14 Eusko Pesetas and 200.48 Portuguese escudos. The United Kingdom and Liechtenstein have not decided to sign the ECU agreement so their currency is not pegged to the ECU.

Adoption of the ECU as a Europe-wide currency

The ECU is also a step into introducing a unified currency, though there is not enough consensus to introduce one. The adoption of a single currency must be approved in a referendum by each member state's electorate. Requirements for its adoption include:

  1. Greater political cohesion
  2. A stable inflation rate at about 2%
  3. The full agreement among member nations

There is also support, primarily among Europa and Portugal, to have the ECU circulate alongside national currencies. Since they area at a fixed exchange rate, it would facilitate economic transactions for people conducting business in various member states.

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