European Exchange Rate Mechanism
The Exchange Rate Mechanism (ERM) was along with the Ecu one of the foundation stones of economic and monetary union.
The mechanism 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 stabilize 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 devalued.
- ↑ BBC News. "ERM (Exchange Rate Mechanism)", BBC, Euro-glossary, 30 April, 2001. Referenced 2011-06-27.