Basic tasks of the Eurosystem

2.3.1 Basic tasks of the Eurosystem

Article 105(2) of the EC Treaty and Article 3.1 of the Statute of the ESCB confer upon the Eurosystem the sole competence for the following basic tasks:

• to define and implement the monetary policy of the euro area; • to conduct foreign exchange operations; • to hold and manage the official foreign reserves of the euro area Member States; • to promote the smooth operation of payment systems.

Other related tasks include: • the issue of euro banknotes as the only such notes to have the status of legal

tender in the euro area (Article 106(1) of the EC Treaty and Article 16 of the Statute);

• the collection of the statistical information necessary for the tasks of the Eurosystem (Article 5 of the Statute).

The Eurosystem’s capacity to formulate and implement the monetary policy of the euro area is ensured by its full control over base money. Under Article 106 of the Treaty, the ECB and the NCBs are the only institutions that are entitled to actually issue legal tender banknotes in the euro area; the euro area Member States’ right to mint coins is restricted to low denominations and the volume of coins issued is subject to approval by the ECB. Given the dependency of the banking system on base money, the Eurosystem is thus in a position to exert a dominant influence on money market conditions and money market interest rates (see Section 3.1).

The conduct of foreign exchange operations is an important corollary function of the conduct of monetary policy. Assigning this task to the Eurosystem not only exploits the operational capabilities of central banks but also ensures that foreign exchange operations remain consistent with the aims of monetary policy. Foreign exchange operations influence exchange rates and domestic liquidity conditions, which are relevant variables for monetary policy. They have to be compatible with the framework which the Treaty has established for the exchange rate policy of the euro area. In this field, the ECB shares responsibility with the EU Council as the ultimate decision-maker (see Section 3.2.1).

The task of holding and managing the official foreign reserves of the euro area is the logical complement to the Eurosystem’s function of conducting foreign exchange operations. It is complemented by the ECB’s power under Article 31 The task of holding and managing the official foreign reserves of the euro area is the logical complement to the Eurosystem’s function of conducting foreign exchange operations. It is complemented by the ECB’s power under Article 31

Assigning to the Eurosystem the task of promoting the smooth operation of payment systems (see Section 3.3) acknowledges the importance of sound and efficient systems not only for the conduct of monetary policy but also for the economy as a whole.

For the performance of these Eurosystem tasks, the Statute of the ESCB assigns to the ECB and the euro area NCBs a wide range of functional and operational competences under Articles 17 to 24 of the Statute. In addition, the ECB:

• enjoys regulatory powers and the right to impose enforceable sanctions in case of non-compliance with ECB Regulations and Decisions under Article 110 of the Treaty and Article 34 of the Statute (see Section 2.5.3);

• monitors compliance by the NCBs with the prohibition of monetary financing and privileged access to financial institutions for the public sector (see Section 2.5.5).