European Monetary System

European Monetary System (EMS)

A system adopted by European Community members with the aim of promoting stability by limiting exchange-rate fluctuations. The system was originated in 1979 by the nine members of the European Community (EC). The EMS comprised three principal elements: the European Currency Unit (ECU), the monetary unit used in EC transactions; the Exchange Rate Mechanism, ERM, whereby those member states taking part agreed to maintain currency fluctuations within certain agreed limits; and the European Monetary Cooperation Fund, which issues the ECU and oversees the ERM. The 1992 Maastricht Treaty provided for the move to Economic and Monetary Union (EMU), including a European Monetary Institute to coordinate the economic and monetary policy of the EU, a European Central Bank (ECB) to govern these policies, and the presentation of a single European currency.

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European Monetary System

A system established in 1979 whereby most member states of the European Economic Community linked their currencies to each other in anticipation of monetary integration. The first stage of the EMS was the European currency unit, then the ERM I, and, finally, the introduction of the euro and the ERM II. The European Monetary System also called for greater extension of credit between European countries. Among the methods the EMS used included the relative synchronization of national interest rates.