The European Monetary System : Germany

The purpose of the European Monetary System (EMS), which was established in 1979, is to stabilize exchange rates between the currencies of member states in the European Union. In the past years, the EMS has helped to strengthen cooperation among the countries of Europe in the area of monetary policy. It has also had a disciplinary effect on the monetary and financial policies of the EU member states.

All the Member States of the European Union are in the EMS, and most of them are in the Exchange Rate Mechanism (ERM) as well. The ERM fixes the central rates for each currency. Since 2 August 1993 currency market rates have been allowed to fluctuate up to a maximum of 15 percent either side of the central rate. If greater fluctuations are imminent, the national central banks are obliged to buy or sell the currencies affected and thus stabilize the exchange rates. If the economic trend so requires, the central rates can be adjusted by means of a unanimous decision of the EU finance ministers and central bank governors. Obviously, the EMS binds only the exchange rates of the participating countries. The rates with other currencies, such as the dollar or the yen, fluctuate freely on the currency markets.