European Central Bank
The European Central Bank (ECB for short), headquartered in
Frankfurt am Main, is an institution of the European Union and is
responsible for monetary policy and price stability in the European
Its primary objective is to ensure an inflation rate of around 2%. An essential instrument for stabilizing the inflation rate is its interest rate policy. With the help of this policy, the ECB can control the amount of money in circulation, i.e., put more or less money into circulation, which directly influences the inflation rate. For example, if more money is in circulation, the money is worth less, and the inflation rate increases.
The key interest rate plays an important role here. The key interest rate is the interest rate at which commercial banks can borrow and invest money from the ECB. If, for example, the interest rate increases, banks borrow less money from the ECB, and the economic environment calms down.
In addition, the ECB manages the official foreign reserves of the EU member states and promotes the uncomplicated payment system in Europe. The ECB is independent and cannot be influenced by politics.
Do you find the explanation helpful?