As nations experience periods of prosperity and economic distress, there have come to exist strong institutions, which aim to maintain balance and bring the economy back on track. Borne either through situations of crisis, such as in the United States, or through considerable forethought such as in the European Union, central banks serve this very purpose. They exist as a mechanism for the stabilization of the economy and as creators of monetary policy. Central banks have been in place for decades and although many of their main functions are similar across nations, their internal structure and some of their specific aims differ. Such is the case with the European Central Bank (ECB) and the United States Federal Reserve (Fed). This paper will …show more content…
The origin and makeup of the ECB and the Fed are a result of varied historical contexts. As early as the 1950s, Europe saw the introduction of an idea for a cohesive and integrated economic system. In March of 1957 six European nations endorsed the Treaty of Rome, which brought into existence the European Economic Community. Following this came the creation of the Committee of Central Bank Governors in 1964 and the European Monetary System in 1979. However the economic coalition primarily occurred after the Treaty of Rome was amended through the Maastricht Treaty and ratified in November of 1993 (Pollard, 2003). This led to the European System of Central Banks (ESCB), which contain the ECB and the central banks of European Union member nations (NBCs). The ECB and those NBCs that use the Euro are termed as the Eurosystem, which is ruled by the Governing Council and have leadership in the form of an Executive Board (Gerdesmeier, Mongelli, & Roffia, 2007). The Governing Council makes most of the major decisions and has six members from the executive board as well as the NBC governors of the nineteen Euro area countries.