European Monetary System


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European Monetary System (EMS)

a European monetary unit, an exchange rate intervention mechanism and a transfer mechanism established in 1978 under the law of the European Communities. It is this system that established the European Currency Unit (ECU), a currency used to settle transactions between Community authorities and for operating the other mechanisms of the system. Developments in 1997 saw a second exchange rate mechanism for co-ordinating the EURO with remaining national currencies. On 1 January 2002 the euro became the legal tender of the participating countries.
Collins Dictionary of Law © W.J. Stewart, 2006
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References in periodicals archive ?
Previously, the anchor of the European Monetary System has been the independence of the German Bundesbank and its strong focus on price stability.
Limiting Exchange Rate Flexibility: The European Monetary System. Cambridge, Mass.: The MIT Press.
'A Jump Diffusion Model for the European Monetary System', Journal of International Money and Finance, 12, 475-92.
"Exchange Rates, Policy Convergence, and the European Monetary System." The Review of Economics and Statistics, August 1991, 553-58.
AD: Aggregate Demand AS: Aggregate Supply EC: European Community EMS: European Monetary System ERM: Exchange Rate Mechanism EU: European Union VAR: Vector Autoregression
What can be fixed can be floated; the most striking feature of fixed exchange rate regimes is that they tend to collapse.(30) Although the behavior of exchange rates in the European Monetary System continues to be a topic of interest to IFM researchers, the field as a whole has rendered a negative verdict on fixed exchange rates.(31) And as fixed exchange rate regimes become increasingly unpopular, researchers have redirected their attention to alternative monetary policies.
Meanwhile, many lesser building blocks were put in place, including the European Monetary System (1979) with the Exchange Rate Mechanism at its center.
Historical background of the European Monetary System
For France, the choice was made in 1983 to limit the autonomy of its monetary policies by retaining a tight linkage between the franc and the mark in the European Monetary System. Britain and Italy favored autonomy by eventually severing such a connection, at least for a time.
However, by reacting slowly to cutting interest rates, the Bundesbank has prolonged its life as the backbone of the European Monetary System and perhaps, almost single handedly, halted the unionization of Europe.
On paper, the European Monetary System still exists, even if it is barely a shadow of its former self.
It was natural therefore that when the European Monetary System (EMS) was created in 1979, the purpose of which was exchange rate stabilisation, that other currencies would gravitate towards, or track, the strongest currency, namely the deutschmark.

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