UNIT 7 The European Central Bank

Before you read

Discuss these questions.

1. What are the different functions of a nation's central bank? If you are not sure, look at the list below. Make sure you know what all the words mean.

• act as banker to the government

• act as banker to the commercial banks

• supervise the banking system

• print and issue banknotes

• maintain financial stability

• conduct foreign exchange operations

• hold and manage foreign exchange reserves

2. Does your country's central bank set interest rates?

Reading tasks

A. Understanding main points

Read the two short texts on the European System of Central Banks (ESCB) and complete the information below.

1. The ESCB is composed of the … and the … .

2. The ECB is run by the … .

3. The organisation of the ECB executive board:

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4. The members of the executive board are in charge of:

5. The ECB's governing council consists of: a) – g). Of these c) … have the majority.

6. The main objective of the ESCB is to … .

7. The NCBs fulfil all functions except … .

8. Interest rates are set by the … .

Text A

ORGANISATION OF THE EUROPEAN SYSTEM OF CENTRAL BANKS (ESCB)

The ESCB is composed of the European Central Bank (ECB) and the national central banks (NCBs) of the European Union member states.

In accordance with the ESCB Statue, the primary objective of the ESCB is to maintain price stability.

The basic tasks to be carried out by the ESCB are to:

▪ define and implement the monetary policy of the EU;

▪ conduct foreign exchange operations;

▪ hold and manage the official foreign reserves of the Member States; and

▪ promote the smooth operation of payment systems.

In addition, the ESCB contributes to the smooth conduct of policies relating to supervision of credit institutions and the stability of the financial system. It also has an advisory role on matters which fall within its field of competence. Finally, in order to undertake the tasks of the ESCB, the ECB shall collect the necessary statistical information.

Text B

EUROPEAN CENTRAL BANK

Success of ECB critical for banking industry

The ECB is run by a six-member executive board headed by the ECB President and Vice-president. The four other members are in charge of payment systems, banking supervisions, international relations, organisation, statistics, banknotes and information systems.

The ECB took over from national central banks in setting interest rates from January 1999. Interest rates are now set by the ECB’s governing council which consists of the six-member executive board and the presidents of the national central banks of the participant countries.

The all-powerful council will ensure the continued influence of national central banks in the decision-making process. The majority of the presidents of the NCB’s versus the six ECB ‘insiders’ will ensure that national interests will not be ignored under EMU.

Some critics have argued that this could give rise to a potentially destabilising situation. The ECB’s legal mandate is to pursue monetary policy with a view to the whole of the EMU area and without favouring one country over another. Yet if several national central bank presidents were to form voting pacts, they could in theory outmanoeuvre the six executives.

Compared to the national central banks, the ECB will be relatively small. While the Bank of France and the Bundesbank each employ more than 10,000 staff, the ECB will have to do with only 500 employees. The comparison is not entirely fair because the ECB’s staff will be primarily engaged in research, security and payments systems, while most of the staff at NCBs are involved in areas such as logistics and administration.

Because the national central banks will remain large and important, the transition to the new regime will not mark a sudden shift. The Bundesbank will continue to exist and fulfil all its current functions except setting interest rates.

EMU = European Monetary Union

B. Understanding details

Mark these sentences T (true) or F (false) according to the information in the texts. Find the part of the text which gives the correct information.

1. The NCBs have no influence on the stability of the euro.

2. The ECB must consider the needs of all EMU countries equally.

3. The NCB presidents could overrule ECB decisions if they want to.

4. The staff of the Bundesbank is 20 times larger than that of the ECB.

5. ECB staff carry out the same tasks as NCB staff.

6. The creation of the ECB forced rapid changes to be made in Europe’s central banking system.

Vocabulary tasks

A. Word fields

Write these words and phrases in the appropriate columns.

B. Definitions

Match these terms with their definitions.

C. Collocations

Match these verbs and nouns as they occur in the texts.

D. Word families

Complete the chart.

Over to you

1. Describe, orally or in writing, how the euro has performed recently.

2. Discuss these questions.

a) Has European Monetary Union been a success or a failure?

b) Has the ECB done a good job?

c) Have there been any major disagreements between the ECB and the national central banks of the European member states?

d) What do you think of the UK’s position regarding the euro?

e) Can you make any comparisons between the ECB and the US Federal Reserve?

3. Describe the structure of the organisation where you work or study?

Date: 2014-12-21; view: 7408