The European Exchange Rate Mechanism (TheEuropeanExchangeRateMechanism, ERM) European Exchange Rate Mechanism Introduction The European Exchange Rate Mechanism (ERM) was created forexrebateclub 1979 to limit the cashback forex rate fluctuations of the currencies of EU cashbackforexbroker cashbackforexexness The European Exchange Rate Mechanism (ERM) sets a fixed central rate for the exchange rates of member states currencies, allowing the exchange rate to fluctuate within a certain range above forex rebate club below the central rate According to the provisions of the new member states of the European Union before joining the euro area, should be included in the exchange rate system that allows the exchange rate to fluctuate within a range of 15% above and below the central exchange rate, for two years EERM member states At its inception in 1979, only the former Federal Republic of Germany, France, Italy, the Netherlands, Belgium, Luxembourg, Denmark and Ireland participated in the European Exchange Rate Mechanism after the eight member states. Spain joined the EERM in June 1989, the UK in October 1990, and Portugal in April 1992 (a) The EERM is a multilateral arrangement with fixed and adjustable exchange rates. (ii) In the agreement between the ECB and the central banks of the non-euro area member states on the operating procedures of the ERM, the flexibility in the use of interest rates has been included in the agreement between the ECB and the central banks of the non-euro area member states on the operating procedures of the ERM. (iii) The EERM is based on a multilateral agreement between the non-EMR member states of the EU, the euro area member states, the ECB and the member states that have joined the mechanism The central exchange rate of the currencies of the non-euro area member states against the euro and whether to further reduce the margin of fluctuation are decided jointly by the finance ministers of the euro area member states, the ECB governor and the finance ministers and central bank governors of the non-euro area member states participating in the EERM, following a common procedure of the European Commission and consultations at the meeting of ministers of economy and finance If the equilibrium exchange rate changes, the parties participating in the EERM, including the ECB including the ECB, have the right to propose rearranging the central exchange rate (d) the EERM is different from the usual intermediate-type exchange rate regime, which is unique in that it has a clear and credible exit mechanism (exitmechanism), which is one of the convergence criteria for joining the European Monetary Union to participate in the EERM and keep the exchange rate stable for at least two years And the convergence of economic fundamentals is a prerequisite for sustainable exchange rate stability, which can provide a standard for the implementation of fiscal and monetary policies of member countries and reduce the uncertainty of economic policies of member countries As long as the continuity of policies and the solidity of economic fundamentals are maintained, they can better cope with the impact of speculation on the currencies of participating countries Evaluation of the European Exchange Rate Mechanism After the eastern expansion of the EU, the countries joining the European Exchange Rate Mechanism are also The stability of the expanded EERM depends largely on the stability of the currencies of the new member states, and the Balassa-Samuelson effect, and speculative shocks caused by over (or under) confidence are two major challenges for the new member states to maintain currency stability The EERM can give the new member states more flexibility to maintain exchange rate stability and facilitate the achievement of convergence criteria, but the EERM is not a symmetrical system, and it may be problematic in that it does not establish a substantive mechanism for cooperation between the ECB and the new member states, does not specify what intervention obligations the ECB should have in assisting the new member states in stabilizing exchange rates, and does not specify the obligations of member states to coordinate and cooperate with each other Some of the institutional deficiencies of the EERM may make it difficult for the new member states to deal with the Balassa -Under the existing institutional arrangements, a feasible way to reduce the risk of instability in the EERM is to improve the quality of the accession member countries, and to recommend, as far as possible, that the new member countries should establish a monetary policy framework and exchange rate regime that is compatible with the EERM after they have basically completed the corresponding economic reforms and structural adjustments. To the extent possible, it is recommended that new member states should, after they have largely completed the corresponding economic reforms and structural adjustments, establish monetary policy frameworks and exchange rate regimes that are compatible with the EERM, and achieve basic convergence standards in order to minimize the time spent on the risk of violating exchange rate stability standards
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