It is the successor of the European Monetary Institute - set up five years ago to oversee the transitional second stage of monetary union.

The ECB works with national central banks within what is called the European System of Central Banks. Its key tasks are to:

• Define and implement monetary policy, such as setting interest rates;
• Maintain price stability;
• Support economic policies of member states as long as they do not affect price stability;
• Conduct foreign exchange operations and look after the official foreign reserves of the member states;
• Promote smooth operation of payment systems that link banks.

Europe's new central bank has exclusive rights to authorise the issue of banknotes within the Community but it will share the actual role and process of issuing banknotes with national central banks.

Member states taking part in monetary union are only allowed to issue coins. The ECB has to approve the volume of money issued.

The ECB is regarded by many in the banking profession as a double of Germany's Bundesbank - and it is actually based in Frankfurt, Germany's financial capital. Like the Bundesbank, one of its main aims is to keep inflation under control.

Governing body

The ECB is headed by Wim Duisenberg, the former head of the Dutch Central Bank.

His appointment was hotly contested. Most EMU members had agreed to support Mr Duisenberg, but France threatened to veto him, nominating its own candidate.

In an unwritten compromise, Mr Duisenberg was appointed on the understanding that he may step down before the end of his eight-year term, making room for the governor of the French central bank, Jean Claude Trichet, as his successor. However, shortly before the birth of the euro Mr Duisenberg indicated that he may want to serve out his full term.

The ECB's governing council includes the ECB president, the 11 heads of the national central banks participating in the euro and five other full-time members of the executive council, all of whom are political appointments:

• Vice President Christian Noyer, the former director of the French Treasury
• Chief economist Otmar Issing, the hard-line monetarist chief economist of the Bundesbank
• Tomasso Padoa-Schioppa, the former chair of Italy's stock market regulator Consob
• Eugenio Domingo Solans, from the Bank of Spain
• Sirkka Hamalainen. Finland's Central Bank Governor and the only woman in the group

Their term of office will run for eight years and is not renewable.

Four countries stayed out of Emu in the first wave - the UK, Sweden, Denmark and Greece. They are not subject to the powers of the ECB, and have no influence on its policy.

But they probably take into account the activities of the euro when setting their own monetary policy.