Monetary Policy Glossary

Monetary Policy Glossary

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Governing Council of the ECB 
The main governing body of the European Central Bank (ECB), the Eurosystem and the European System of Central Banks (ESCB). It comprises the members of the ECB Executive Board and the governors of the national central banks of those EU Member States whose currency is the euro. Its president is the president of the ECB. Its main responsibilities are: to formulate monetary policy for the euro area. This includes decisions relating to monetary objectives, key interest rates and the supply of reserves in the Eurosystem; to carry out foreign currency exchange operations; to promote the smooth operation of payment systems in the euro area; to authorise the issuing of banknotes in the euro area, notes issued by the ECB and national central banks, and the volume of metallic coins issued in euros; to reach agreements and adopt the necessary legal instruments to guarantee, in the euro area, the fulfilment of the basic functions assigned to the ESCB by the Treaty establishing the European Community. Each member has one vote and, except when stipulated otherwise, decisions are made by simple majority and in case of a tie, the president decides. In practice, an important part of the decisions are taken by consensus. In the case of decisions on financial matters relating to the national central banks in their capacity as shareholders of the ECB, Governing Council member votes will be weighted according to their share in the capital subscribed to the ECB, the weight of the members of the Executive Board being zero. The Council usually meets twice a month. At its first meeting each month, the Governing council assesses economic and monetary developments and makes decisions, among others, on the modification of the euro area interest rate. In order to maintain the efficiency of the Council, when its number of members substantially increased after the incorporation of new EMU Member States, the Council of the European Union, based on a recommendation by the ECB, established on 21 March 2003 that the members of the ECB Executive Board will conserve their zero vote, but the number of governors with the right to vote will not exceed fifteen, although all governors will attend the Council meetings and participate in the deliberations. Therefore, from the moment that there are more than fifteen governors in the Council, they will exercise the right to vote by a rotation system. To this end, they will be divided into several groups which will be assigned a number of votes that their members will take turns to exercise. When the number of governors is between sixteen and twenty-two they will be classified into two groups and, when this last number is exceeded, into three groups, according to an indicator of the relative size of the economy of their respective States. This indicator will be calculated taking into account their investment in the gross domestic product and in the balance sheet of the financial institutions of the euro area.