The prime responsibility of the European Central Bank is the maintenance of price stability. It is therefore responsible for setting monetary policy for all those countries that are part of the single currency. To maintain the single currency needs one interest rate. That rate is set by the Governing Council of the European Central Bank who meet twice a month to discuss it. So, as we know,- joining the eurozone means losing counties monetary policy. From counties Central Bank functions it goes to European Central Bank functions.
Once they have set the interest rate it is mainly up to the National Central Banks to maintain that rate in their own countries. They do that by using 'open market operations'. The Banks make sure that there is a shortage of liquidity in the system and they then provide the necessary liquidity on their terms.
The European Central Bank is also responsible for managing the foreign exchange reserves of the euro area countries and conducting any necessary foreign exchange operations. They operate a minimum reserve system. All credit institutions in the euro area have to keep a minimum reserve with the European Central Bank. This has currently been set at 2% of their liabilities. The rest of their work is anything that may help support the member countries of the Community. This may mean helping to establish efficient payments systems or helping to maintain the stability of the financial system.
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