The Monetary and Financial System

This chapter explains the functioning of the monetary and financial system in the euro area. As such, it establishes the basis for the discussion of monetary policy, banking supervision, and financial stability in the following chapters. The overview is deliberately brief and leaves technical details aside, while using everyday life examples to facilitate the understanding of otherwise rather generic concepts. The section first discusses the main elements and functioning of the monetary system, including the three types of money in the euro area. Afterwards, we sketch out the structure of the financial system and its three main components: financial institutions, markets, and infrastructure.