Grundzüge des Europäischen Währungssystems

Abstract

The Basic Feature of the European Monetary System

The European Monetary System (EMS) replaced the parity grid system known as the “currency snake” on March 13, 1979. The EMS is a regionally limited system of fixed but adjustable parities. The common denominator for parity fixing is tne European Currency Unit (ecu). Like the special drawing rights of the IMF, the ecu is a basket of currencies. It contains certain fixed amounts of currencies of the EC countries. The ecu parities govern a system of key cross rates about which the market rates of the participating currencies may fluctuate only within narrow limits. The obligation of the participating central banks to intervene ensure that these limits are not exceeded. The EMS parity system is supplemented by a system of divergence limits. The divergence limits are certain values of a divergence indicator, which signals divergences among the currencies participating in the system. The daily value of the ecu serves as divergence indicator. If a currency moves beyond its divergence limit, it is presumed that the country concerned will initiate economic policy measures to remedy the situation. Should the country with the divergent currency take no action, consultations at Community level are held. The parity system and the system of divergence limits are supplemented by a balance settlement and credit system, which ensures very short-term financing of the interventions of the participating central banks on the exchange markets and governs the manner of settling the resulting balances. Balances can be partly settled by transfer of ecu credit balances, which were created by the deposit of currency reserves with the European Fund for Monetary Co-operation (ecu as means of payment and reserve asset of the EC central banks). Apart from the very short-term financing of intervention balances, facilities for longer credits (short and medium-term assistance) are available to defend the fixed-parity system. The effective credit amount available for this purpose is 25,000 mill. ecu (approx. DM 63,000 mill.).