Glossary:Exchange rate mechanism (ERM)

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The European Exchange rate mechanism, abbreviated as ERM, was set up in order to stabilise exchange rates and help Europe to become an area of monetary stability before the introduction of the single currency, the euro.

After the euro’s introduction on 1 January 1999, the original ERM was replaced by ERM II (Exchange rate mechanism II) at the start of Stage Three of economic and monetary union (EMU). This began with the irrevocable and definitive fixing of exchange rates, the transfer of monetary competence to the European Central Bank (ECB), and the introduction of the euro as the single currency. ERM II provides a framework for exchange rate policy co-operation between the Eurosystem (the central banking system of the euro area) and the European Union (EU) Member States that are preparing to adopt the euro.

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