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EDITIONS
Euro-glossary Monday, 30 April, 2001, 11:21 GMT 12:21 UK
ERM (Exchange Rate Mechanism)
Along with the Ecu, the Exchange Rate Mechanism was one of the foundation stones of economic and monetary union.

It gave currencies a central exchange rate against the Ecu. That, in turn, gave them central cross-rates against one another.

It was hoped that the mechanism would help stabilise exchange rates, encourage trade within Europe and control inflation.

The ERM gave national currencies an upper and lower limit on either side of this central rate within which they could fluctuate.

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.

See also:

13 Mar 01 | Euro-glossary
13 Mar 01 | Euro-glossary
13 Mar 01 | Euro-glossary
07 Dec 00 | Nice summit glossary
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