A premier financial institution in Europe called the ‘European Central Bank’ was formed as a result of the Treaty of Amsterdam, in June 1998. The European Central Bank or ECB comprises 17 European Union Eurozone member states and, has played a vital role in the formation of ‘Euro,’ as a currency.

In order to minimize the complications involved in inter-European trade, and to ease the transaction mechanism, ‘Euro’ was introduced as the ‘transaction currency’ in Europe in the year 1999. Initially, it had 11 member states that gradually grew, with the participation of other Eurozone members, to become 17 member states in total. The European Central Bank has done everything, in order to restore Euro’s purchasing power, and anchoring inflation at bay.

The monetary policy adopted by the European Central Bank, primarily focuses on monetary stability, which consistently checks the inflation rate. The upper threshold for inflation rate in a long term time slot should not exceed 2%, and that is what, monetary stability demands. The European Central Bank has prioritized price stability and monetary stability at the topmost level, to check inflation and recessive economic conditions.

European Central Bank has got several tasks at hands including, coordination and monitoring of the operations related to the monetary policy. The European Central Bank plays a vital role, in adoption of legal acts, defining Eurozone policies, authorization of bank ‘currency notes’ issuance, intervening with the foreign exchange trading, managing foreign reserves, apart from its other duly stated routine assignments.

Furthermore, it generates statutory reports, monitors and analyses, financial risks, assists national authorities and community institutions, and ensures smooth functioning of the IT system in a typical hub and spoke system, ECB being the hub. European Financial Stability Facility (EFSF) has been incorporated by the 27 European Union member states on the 9th of May’2010. This measure would ensure safeguarding of European financial stability, through an extended financial assistance to all the member states.

The European Central Bank is located at ‘Frankfurt am Main’, ‘Hesse’ in Germany, and as of financial year 2012, its president was held by ‘Mr. Mario Draghi’. The European Central Bank is known to possess reserves equivalent to 526 billion euro and it has got a base borrowing rate of 1.00% and base deposit rate of 0.25%. The 27 major and central banks of the member states of European Union are the actual owners and shareholders of the European Central Bank.

The governing council of the European Central Bank has done a commendable job by formulating a highly effective monetary policy. The mandate of the European Central Bank lies in the price stability factor and that has always played an instrumental role in checking inflation. Eurozone members and trade partners of the European Central Bank have always been on the gaining side because of the policies formulated and implemented by, the European Central Bank and its associates.