EUROPEAN EXCHANGE RATE MECHANISM: EVOLUTION, CHALLENGES, AND LEGACY

Abstract

The European Exchange Rate Mechanism (ERM) represents a pivotal development in the history of European monetary integration, playing a crucial role in stabilizing exchange rates and laying the groundwork for the eventual adoption of the euro. This paper offers a comprehensive examination of the ERM, tracing its historical evolution, operational mechanisms, and the challenges it faced, particularly during the crises of the early 1990s. Through an analysis of the ERM's successes and failures, the study provides insights into the complexities of maintaining fixed exchange rates in a region characterized by diverse economic conditions. The discussion also extends to the ERM's legacy and its relevance to contemporary and future monetary policy in Europe