The European Central Bank (ECB) - What is it?
What is the European Central Bank and why does it play an important role in the economy? After reading this explainer, you’ll know all the basics you need in order to take part in the European Citizens Bank platform.
We all use money every day to buy food in shops or pay our bills. And to get money, most people work and earn a salary, get money from their pensions, or get money from social security. But how is money created in the first place?
Every currency – like the euro, the dollar or the Swedish krona – needs a special institution to supervise and manage its money system. Those institutions are usually called the “central bank”, but they are not like a normal bank where anyone can open a bank account. They have this name because central banks are sort of like the “bank of the banks”. Central banks provide important background services for the commercial banks (which also play a key role in the system, as we will see later).
Every country that has its own currency has a central bank. But the Eurozone is kind of a special case - there are no less than 19 central banks! This is because before the creation of the euro most countries had their own national currency, and therefore their own central bank (like Banque de France or Banco de España). When governments created the euro, they chose to preserve the national central banks while creating the European Central Bank above them. Both national central banks and the ECB work together and form a closely integrated network: the Eurosystem.
Central banks are very unique institutions because they are independent from political bodies, and because they have the super-powerful ability to influence the process of creation of money by the financial sector.