The system behind the Euro

The system behind the Euro

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Today, the Euro is one of the main currencies on the FX market and it is of imperative importance to anyone from big institutional traders to micro-traders on retail FX platforms. To better understand and predict the Euro, we must understand the Eurosystem – the monetary authority of the eurozone. 

  1. What is the Eurosystem? 

The monetary authority of the eurozone is called the Eurosystem. 

The eurozone consists of the European Union member states that have adopted the euro as their sole official currency. Not all member states have done this, so the Eurosystem have fewer members than the European Union. 

At the time of writing, the Eurosystem consists of the European Central Bank (ECB) + 19 EU member states. Each of the 19 members still have a national central bank, and these national central banks apply the monetary policy of the ECB. 

  1. Objectives
  • The primary stated objective of the Eurosystem is price stability. 
  • The two secondary stated objectives of the Eurosystem are financial stability and financial integration. 

The mission statement of the Eurosystem states that the European Central Bank and the national central banks will contribute jointly to achieve these objectives. 

  1. Current members of the Eurosystem 

The Eurosystem currently consists of the European Central Bank (ECB) + 19 EU members. 

These are the 19 members, followed by the name of their national central bank (in English).  

  • Austria: Oesterreichische Nationalbank
  • Belgium: National Bank of Belgium
  • Cyprus: Central Bank of Cyprus
  • Estonia: Eesti Pank
  • Finland: Bank of Finland
  • France: Banque de France
  • Germany: Deutsche Bundesbank
  • Greece: Bank of Greece
  • Ireland: Central Bank of Ireland
  • Italy: Bank of Italy
  • Latvia: Latvijas Banka
  • Lithuania: Lietuvos Bankas
  • Luxembourg: Banque centrale du Luxembourg
  • Malta: Central Bank of Malta
  • Netherlands: De Nederlandsche Bank
  • Portugal: Banco de Portugal
  • Slovakia: Národná banka Slovenska
  • Slovenia: Bank of Slovenia
  • Spain: Banco de España

Who can issue euro coins and banknotes? 

  • The European Central Bank (ECB) has the exclusive right to authorize the issuance of euro banknotes. 
  • Eurozone member states can issue euro coins, if the amount has been approved by the ECB in advance. 

Is the Eurosystem the same as the European System of Central Banks (ESCB)?

No, the Eurosystem is not the same as the European System of Central Banks (ESCB). ESCB is comprised of the European Central Bank + the national central banks of all the 27 European Union member states. 

What is TARGET2?

TARGET2 is the real-time gross settlement system (RTGS) developed, owned and operated by the Eurosystem. 

RTGS systems are fund transfer systems for money or securities, where the transfer goes from one bank to another in real-time. Gross settlement refers to the fact that the transaction is settled on a one-to-one basis without bundling or netting. 

TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is based on the Single Shared Platform (SSP) which is operated by three central banks: Banque de France, Deutsche Bundesbank and Banca d’Italia. 

Among other things, TARGET2 function as an interbank RTGS payment system for the clearing of cross-border transfers in the eurozone. TARGET2 is also available to non-Eurozone countries.