Question

Explain the similarities and differences between the European System of Central Banks and the Federal Reserve System.

Answer 1

The European System of Central Banks (ESCB) consists of all EU Member States' legally autonomous National Central Banks and the legally autonomous European Central Bank (ECB). However, the Eurosystem consists of the 16 countries' National Central Banks (NCBs) belonging to the euro currency area, as well as the European Central Bank. The ECB is the core of the Eurosystem and is responsible for compiling all Eurosystem tasks themselves or by the NCBs.

The Board of Govenors (BoG) is composed of seven members, who are appointed by the President of the United States and must be confirmed by the Senate. That tenure in office amounts to 14 years. There is no possibility of a referendum. The representatives have to come from different districts to ensure that individual Federal Reserve Districts are not over-represented. Both the BoG's Chairman and Vice-Chairman are nominated by the President out of the BoG's seven members and confirmed by the Senate. For any scenario, their tenure in office amounts to four years, and a recall is likely. Also, each BoG member is represented on the Federal Open Market Committee ( FOMC).

The Eurosystem 's main goal is to establish price stability. Price stability is characterized as an annual increase in the harmonized index of consumer prices (HICP) below, but close to 2%, for the euro currency region. In the long term an inflation rate should be held close to 2 per cent. There are many reasons why zero or near to zero inflation is not desirable. The HICP 's official prices continue to be higher with the effective price increasing. For example, one explanation for that is that quality changes are not adequately observed. Under strictly defined limits, decision-making bodies are allowed to issue binding legal acts to the Eurosystem to ensure that the NCBs are able to carry out decentralized activities. The decision-making bodies are also able to enact laws that are binding out of the Eurosystem.

The Fed pursues a range of goals, such that it is not possible to rate such goals with the goals of the ECBs according to priority as possible. A description of the priorities can be found in paragraph 2A of the Federal Reserve Act as of 1977. 'The Board of Governors of the Federal Reserve System and the FOMC shall sustain long-term growth in monetary and credit aggregates in line with the long-term ability of the country to increase production in order to effectively promote the objectives of maximum jobs, stable prices and moderate long-term interest rates.' The monetary policy tasks are so broadly defined, but there are many ways to achieve the statutory targets