Even before the real establishment of the European Central Bank, economists have discussed the role and success of central banks in devising and implementing uniform and relevant monetary policies. Interest in the subject was reinvigorated in the late 1990s when the European Central Bank (ECB) was established with the purpose of ascertaining price stability in the euro zone. The interest was predicated upon the fact that the European Central Bank was a unique monetary institution created to direct monetary policy for eleven different nation-states. Although this new institution did not have the nation-state basis of other central banks, like the U.S. Federal Reserve System (the Fed), its outlook and functions resemble those of other central banks. This essay will try to analyze the characteristics of the European Central bank and of the Federal Reserve System, and will attempt to demonstrate that the two share many important similarities. The comparison will be based on several features - the design, decision-making and functions - of the ECB and the Fed that justify the validity of a comparative analysis. In other words, despite the fact that ECB does not exist in the federal context of the Fed, it functions like a central bank in a federal state system banking in the Euro-zone.
DESIGNING CENTRAL BANKS: ECB AND THE FED.
The institutional design of both the European Central Bank and the Federal Reserve System reflect the desire of their founders to insulate them from political pressures. The Federal Reserve System, called the Fed, is governed by seven members of the Board of Governors in Washington, D.C. and the presidents of twelve Federal Reserve District Banks. The Board governors are appointed by the U.S. President and confirmed by the Senate for a non-renewable term of fourteen years. The facts that their appointment needs to be approved by both the Presidents and the Senate, that their term of office is longer than other elected officials - fourteen years, and that this term is not renewable, guarantee the Board members' relative autonomy from political pressures.