How The European Central Bank Works Outside The Eurozone


How The European Central Bank Works Outside The Eurozone

The European Central Bank (ECB) is the central bank for the Euro, and is responsible for maintaining price stability within the Eurozone. You can read more about what the ECB does in our short introduction to the institution. Not all European countries use the Euro, however - so how does that affect the way they work with the ECB?

Which European Union Countries Don’t Use The Euro?

Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Poland, Romania, Sweden are all Euroless… and of course the UK. Outside the EU but still in Europe, Switzerland has kept the Swiss Franc. All of these countries - barring Switzerland - own a share of the ECB capital stock. Although the ECB is subject to and governed by European law, it is set-up to resemble a corporation. It has shareholders and stock capital of €5billion. This capital is held by the national central banks (such as the Bank of England) which essentially act as shareholders, although shares can’t be transferred, sold or used as collateral.

What’s The Deal With The ECB And The UK?

The UK is one of Europe’s strongest and biggest economies - so despite not being part of the European single currency, it asked for a seat on the Executive Board of the ECB. However, this request was denied, and under pressure from the Banque de France, the seats were allocated to France, Germany, Italy and Spain. The Bank of England now owns a share of the ECB’s capital stock instead. Recently, the Governor of the Bank of England called on the ECB and Eurozone members to ensure that future steps to increase financial stability within the Eurozone do not have a negative effect on non-Eurozone members of the EU. It will be interesting to see what happens when the UK has its promised referendum on EU membership.

How Does The ECB Work With Switzerland?

In 2011, Switzerland brought in a controversial policy to peg the Swiss Franc to the Euro, in order to keep the Franc down and to protect Swiss exports. However early in 2015, the Swiss National Bank announced that this would no longer be the case. This caused the Franc to immediately shoot up 20%, making Swiss exports more expensive - an apparently negative move for Swiss industry considering that 60% of all Swiss exports are sold in the Eurozone. Despite negatively affecting trade, the decision hasn’t been reversed. Sending money internationally? Use Wise to save on bank charges.

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