European Monetary System

Discipline: Economics

The monetary system established in 1979 to link the currencies of the member states of the European Economic Community to prevent fluctuations, and ensure stability. To achieve that goal, the Jenkins Commission - that is, the European Commission which was in office between 1977 and 1981 - introduced the European Exchange Rate Mechanism (ERM) system, and created a basket of currencies under the name European Currency Unit (ECU), that served as an internal accounting currency unit until being replaced by Euro in 1999.

When the member-states fixed their currencies with the adoption of Euro in 1999, the ERM system was no longer needed, and was replaced by the ERM-II, which allows the participating member-states to float their currencies within a range of 15% to Euro. The ERM-II system also serves as a test stage of two years for member-states before they adopt Euro.

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