Context: The Reserve Bank of India (RBI) and the European Central Bank (ECB) signed a Memorandum of Understanding (MoU) to enhance cooperation in central banking.
European Central Bank (ECB)
About European Central Bank (ECB):
What it is?
The European Central Bank (ECB) is the prime monetary authority of the European Union and the central component of the Eurosystem and the European System of Central Banks (ESCB). It is one of the world’s most influential central banks, overseeing a combined balance sheet of approximately €7 trillion.
Founded in: 1st June 1998, by the under the Maastricht Treaty framework.
The euro was launched on 1 January 1999.
Official EU Status: Gained the status of an official EU institution on December 1, 2009, via the Treaty of Lisbon.
Headquarters: Frankfurt, Germany.
Aim:
The primary objective of the ECB is to guarantee and maintain price stability within the Eurozone. It manages the Euro—the single currency of the EU—and works to keep consumer price inflation low and stable to support economic growth and job creation.
Members:
The ECB governs the Eurozone, which has expanded from its original 11 members to 21 countries as of 2026.
Recent Additions: Croatia joined in January 2023, and Bulgaria became the latest member in January 2026.
Ownership: Its capital stock (€11 billion) is owned by the central banks of all 27 EU member states as shareholders, with shares determined by each nation’s population and GDP.
Key Functions:
Monetary Policy: The Governing Council defines monetary policy for the Eurozone, including setting key interest rates and monetary objectives.
Currency Issuance: Holds the exclusive right to authorize the issuance of Euro banknotes; it also approves the volume of Euro coins issued by member states.
Foreign Exchange Management: Administers the foreign exchange reserves of EU member states and conducts foreign exchange operations.
Financial Oversight: Operates the T2 (TARGET2) payments system, ensuring the smooth settlement of large-value payments in Euro.
Policy Enforcement: The Executive Board enforces the decisions of the Governing Council and provides directions to national central banks across the Eurozone.
Significance of the MoU with RBI:
The renewed agreement facilitates a structured framework for the regular exchange of information and best practices in central banking.
Enhanced collaboration between two of the world’s major central banks helps in better monitoring global financial sector developments and systemic risks.