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    European Monetary System

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    May Abia
    The European Monetary System (EMS) established in 1972 aimed to provide exchange rate stability among European countries. The EMS used the European Currency Unit (ECU) as a unit of account for loans between countries. The exchange rate mechanism (ERM) established central exchange rates for currencies with price limits. However, the currency crisis of 1992 caused the system to break down as Britain and Italy withdrew from the EMS.

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    European Monetary System

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    May Abia
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    The European Monetary System (EMS) established in 1972 aimed to provide exchange rate stability among European countries. The EMS used the European Currency Unit (ECU) as a unit of account for loans between countries. The exchange rate mechanism (ERM) established central exchange rates for currencies with price limits. However, the currency crisis of 1992 caused the system to break down as Britain and Italy withdrew from the EMS.

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    EUROPEAN MONETARY SYSTEM.pptx

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    The European Monetary System (EMS) established in 1972 aimed to provide exchange rate stability among European countries. The EMS used the European Currency Unit (ECU) as a unit of account for loans between countries. The exchange rate mechanism (ERM) established central exchange rates for currencies with price limits. However, the currency crisis of 1992 caused the system to break down as Britain and Italy withdrew from the EMS.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    114 views11 pages

    European Monetary System

    Uploaded by

    May Abia
    The European Monetary System (EMS) established in 1972 aimed to provide exchange rate stability among European countries. The EMS used the European Currency Unit (ECU) as a unit of account for loans between countries. The exchange rate mechanism (ERM) established central exchange rates for currencies with price limits. However, the currency crisis of 1992 caused the system to break down as Britain and Italy withdrew from the EMS.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 11

    EUROPEAN MONETARY SYSTEM

    Structure of the EMS


    I. INTRODUCTION A. The European Monetary System (EMS) 1972 New system began

    the snake which was designed to keep EC countries exchange rates within narrower band.

    B. EMS Objective: to provide exchange rate stability to all members by holding exchange rates within specified limits

    C.

    European Currency Unit (ECU) -a cocktail of European currencies

    with specified weights as the unit of account. - served an additional role in denominating loans among EMS countries
    e.g PRIVATE LOANS

    ECU was also used to denominate loans made by EUROPEAN MONETARY CO- OPERATION FUND
    or EMCF.
    EMCF made short term and medium term readjustment loans to EMS members out of a pool of funds at the Bank For International Settlements..

    THE EUROPEAN MONETARY SYSTEM


    1. Exchange rate mechanism (ERM)
    - each member determines mutually agreed upon central cross rate for its currency.

    Grid central feature of the ERM placed an upper and lower limit on possible exchange rate

    D.

    Three exchange rates in each element Par value Upper limit Lower limit

    Currency Crisis of Sept. 1992 a. System broke down b. Britain and Italy forced towithdraw from EMS.

    Maastricht Agreement which committed the community members to a common currency.

    Price Adjustment under the EMS


    Price Level Adjustment Mechanism of Gold Exchange and Bretton Woods System applies also to EMS. CETERIS PARIBUS- reduced the Belgian Price Level and increased the German price level.

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