ERM

ERM (European Exchange Rate Mechanism) A system of fixed exchange rates among a majority of member states of the European Community (European integration), established in 1979. Originally, the central banks of member states were obliged to intervene if the value of a particular currency changed by more than 2.5 per cent against the determined exchange rate with any other currency. Despite numerous realignments, the ERM arguably provided for some stability in the money markets. Since 1993, it has been less effective, as the permissible deviation of most currencies from their predetermined value was then raised to 15 per cent. Nevertheless, it continued to operate, as all applicant member states' currencies needed to prove the stability of their currencies within the ERM before they were allowed to join the euro.

The British pound entered the ERM only in 1990. After desperate attempts by the British government to support the value of the currency, it was forced out of the ERM on 17 September 1992, an episode that proved a tremendous embarrassment for the British Prime Minister, John Major.

Gold Standard; Bretton Woods