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In order to achieve its primary objective, i.e. price stability, the Eurosystem manages the monetary policy of the euro area through a series of instruments and procedures that constitute its operational framework.

Monetary policy decisions are taken by the Governing Council of the European Central Bank (ECB) and are implemented by the national central banks of the euro area countries.

Monetary policy is implemented on the basis of uniform and universally valid criteria through three mechanisms that are accessible on equal terms to all financial institutions in the euro zone:

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Companies dealing with foreign clients must ensure that they use an accounting system that complies with the tax rules of their home country, especially when preparing consolidated accounts. All other jurisdictions will also be taken into account. This will make it easier to trace currency conversions from the financial statements themselves.

When evaluating the system, limit the occurrence of the errors mentioned in other sections. You ensure that the information is accurate, that there are no duplications and that you comply with current legislation. You also ensure that you understand how currency exchanges are made and how they are reflected in the consolidated accounts.

Internal controls are used to detect and analyze errors in foreign currency gains and losses. The accounts included in the net profit and the statement of foreign exchange will be analyzed. In addition, business activities are monitored for significant or unusual transactions.

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In this sense, monetary policies can be expansive or restrictive. Before going into the explanation, it is necessary to be clear about the law of supply and demand, which explains that an increase in consumption causes an increase in prices (inflation) and a decrease in consumption causes a fall in prices (deflation).

This measure is carried out in times of deflation, i.e. when there is a generalized fall in prices. Its mission is to inject money into the economy so that consumption of goods increases and, therefore, prices rise. These are the measures that can be adopted:

It consists, contrary to the expansive monetary policy, in reducing the amount of money in the market and consequently controlling inflation so that it stabilizes or decreases. The measures that can be adopted are:


Ecuador undertook a series of economic reforms in 1994. The economic authorities considered that a policy of reducing by law the interest rate to make credit cheaper would be the best option to encourage investments and improve the country’s economy. In addition, the exchange band system was adopted by the Central Bank to regulate the exchange rate of the sucre with respect to the dollar; however, by 1997 an upward movement of the exchange rate of the dollar in relation to the national currency began to be observed.

In the government of Jamil Mahuad in 1999, dollarization began. One of the great controversies in this regard was not only the loss of monetary sovereignty, but also the exchange rate under which it was adopted, at 25,000 sucres to the U.S. dollar. Added to this were the counterproductive actions of the Central Bank of Ecuador and the Internal Revenue Service to hinder the process. This explains in large part – despite the relative inflationary stability – why Ecuadorian migration to other countries has increased and why Ecuador’s middle classes have collapsed, losing their savings.

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