Difference between revisions of "Exchange Rate Mechanism (ERM)"
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− | The Exchange Rate Mechanism (ERM) is a device in which interest rates were only allowed to fluctuate within defined bands. Its overall objective was to stabalise the national currencies in that way that trade within Europe was encouraged and inflation controled. <br> | + | The Exchange Rate Mechanism (ERM) is a device in which interest rates were only allowed to fluctuate within defined bands. Its overall objective was to stabalise the national currencies in that way that trade within Europe was encouraged and inflation controled. (Evans, 87) <br> |
In 1992 the ERM was wrenched apart when a number of currencies could no longer keep within these limits.<br> | In 1992 the ERM was wrenched apart when a number of currencies could no longer keep within these limits.<br> | ||
On what became known as Black Wednesday, the British pound was forced to leave the system. The Italian lira also left and the Spanish peseta was devaluated.<br> | On what became known as Black Wednesday, the British pound was forced to leave the system. The Italian lira also left and the Spanish peseta was devaluated.<br> | ||
As EMU progressed, a currency's ability to stay within its margins became one of the convergence criteria deciding its suitability to join the single currency and complete monetary union. | As EMU progressed, a currency's ability to stay within its margins became one of the convergence criteria deciding its suitability to join the single currency and complete monetary union. | ||
+ | <br><br> | ||
+ | ---- | ||
+ | Links: | ||
+ | *[http://news.bbc.co.uk/1/hi/in_depth/europe/euro-glossary/1216833.stm BBC News Euro-glossary: ERM (Exchange Rate Mechanism)] |
Revision as of 11:30, 25 January 2008
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The Exchange Rate Mechanism (ERM) is a device in which interest rates were only allowed to fluctuate within defined bands. Its overall objective was to stabalise the national currencies in that way that trade within Europe was encouraged and inflation controled. (Evans, 87)
In 1992 the ERM was wrenched apart when a number of currencies could no longer keep within these limits.
On what became known as Black Wednesday, the British pound was forced to leave the system. The Italian lira also left and the Spanish peseta was devaluated.
As EMU progressed, a currency's ability to stay within its margins became one of the convergence criteria deciding its suitability to join the single currency and complete monetary union.
Links: