EXCHANGE RATE MECHANISM

The exchange rate and intervention mechanism of the European Monetary System defined the exchange rate of participating currencies in terms of central rates against the ECU. These central rates were used to establish a table of bilateral central rates between participating currencies. Exchange rates were allowed to fluctuate within a band around the bilateral central rates. The central rates could be adjusted, subject to mutual agreement between all countries participating in the ERM. The ERM ceased to exist with the start of Stage Three of Economic and Monetary Union (EMU) when ERM II was established.