Editing European Monetary System (section)

{{Short description|Organization established in 1979 under the Jenkins European Commission}}
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The '''European Monetary System''' (EMS) was a multilateral adjustable exchange rate agreement in which most of the nations of the [[European Economic Community|European Economic Community (EEC)]] linked their currencies to prevent large fluctuations in relative value. It was initiated in 1979 under then President of the European Commission [[Roy Jenkins]] {{citation needed|date=November 2020}} as an agreement among the Member States of the EEC to foster monetary policy co-operation among their Central Banks for the purpose of managing inter-community exchange rates and financing exchange market interventions.<ref name=":Alogoskoufis">{{Cite journal|last1=Alogoskoufis|first1=George|last2=Giavazzi|first2=F.|last3=Giovannini|first3=A.|date=1991|title=Limiting Exchange Rate Flexibility: The European Monetary System.|journal=Economica|volume=58|issue=230|pages=261|doi=10.2307/2554656|jstor=2554656|issn=0013-0427}}</ref>

The EMS functioned by adjusting nominal and real exchange rates, thus establishing closer monetary cooperation and creating a zone of monetary stability.<ref name="Investopedia: the European Monetary System">{{Cite web|url=https://www.investopedia.com/terms/e/ems.asp|title=European Monetary System (EMS) Definition|last=Liberto|first=Daniel|website=Investopedia|language=en|access-date=2020-03-27}}</ref><ref name="van den Bempt-1987">{{Cite book|last1=van den Bempt|first1=Paul|last2=de Grauwe|first2=Paul|title=The European Monetary System : towards more convergence and closer integration|date=1987|publisher=Acco|isbn=90-334-1600-X|oclc=18291716}}</ref> As part of the EMS, the EEC established the first European Exchange Rate Mechanism (ERM) which calculated exchange rates for each currency<ref name=":Alogoskoufis" /> and a [[European Currency Unit|European Currency Unit (ECU)]]: an accounting currency unit that was a weighted average of the currencies of the 12 participating states.<ref>{{cite web |last1=Hayes |first1=Adam |title=Understanding Exchange Rate Mechanisms (ERMs) |url=https://www.investopedia.com/terms/e/exchange-rate-mechanism.asp |website=Investopedia |language=en}}</ref><ref name="Investopedia: The European Currency Unit">{{cite web |last1=Kenton |first1=Will |title=European Currency Unit (ECU) |url=https://www.investopedia.com/terms/e/european-currency-unit.asp |website=Investopedia |language=en}}</ref> The ERM let exchange rates to fluctuate within fixed margins, allowing for some variation while limiting economic risks and maintaining liquidity.<ref name="MacDonald-1991">{{Cite journal|last1=MacDonald|first1=Ronald|last2=Taylor|first2=Mark P.|date=1991|title=Exchange Rates, Policy Convergence, and the European Monetary System|journal=The Review of Economics and Statistics|volume=73|issue=3|pages=553|doi=10.2307/2109585|jstor=2109585|issn=0034-6535}}</ref>

The European Monetary System lasted from 1979 to 1999, when it was succeeded by the [[Economic and Monetary Union of the European Union|Economic and Monetary Union (EMU)]] and exchange rates for Eurozone countries were fixed against the new currency [[Euro|the Euro]].<ref name="Höpner-2017">{{Cite journal|last1=Höpner|first1=Martin|last2=Spielau|first2=Alexander|date=2017-09-14|title=Better Than the Euro? The European Monetary System (1979–1998)|journal=New Political Economy|volume=23|issue=2|pages=160–173|doi=10.1080/13563467.2017.1370443|issn=1356-3467|doi-access=free|hdl=11858/00-001M-0000-002D-E71E-4|hdl-access=free}}  [[File:CC-BY icon.svg|50px]]  Text was copied from this source, which is available under a [https://creativecommons.org/licenses/by/4.0/  Creative Commons Attribution 4.0 International License].</ref> The ERM was replaced at the same time with the current [[European Exchange Rate Mechanism|Exchange Rate Mechanism (ERM II)]].