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Summaries of EU Legislation

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Exchange rate mechanism (ERM II) between the euro and participating national currencies

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Exchange rate mechanism (ERM II) between the euro and participating national currencies

The Agreement establishes an exchange rate mechanism to replace the old European Monetary System (EMS), which became obsolete with the introduction of the euro. The purpose of ERM II is to maintain stable exchange rates between the euro and the participating national currencies so as to avoid excessive exchange rate fluctuations on the internal market. In the interests of clarity and transparency, the Agreement of 16 March 2006 replaces the previous Agreement concluded in September 1998 and amended on several occasions for technical reasons.


Agreement of 16 March 2006 between the European Central Bank (ECB) and the national central banks (NCBs) of the Member States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union (EMU) [See amending acts].


The single market must not be endangered by real exchange rate misalignments or by excessive nominal exchange rate fluctuations between the euro and the other European Union (EU) currencies, as these would disrupt trade flows between the Member States. This Agreement aims to ensure a stable economic environment by establishing an exchange rate mechanism (ERM II) between the euro and the participating national currencies. Participation in ERM II is optional for the non-euro area Member States, but those Member States with a derogation can be expected to join. ERM II ensures that participating Member States orient their policies to stability and convergence, helping them in their efforts to adopt the euro.

Determining a central rate and intervention bands

A central rate is determined between the euro and each participating non-euro area currency, with a standard fluctuation band of 15 % above and below that rate. All parties to the mutual agreement on the central rates, including the European Central Bank (ECB), have the right to initiate a confidential procedure to reconsider the rates.

Decisions are taken by common accord by the ministers of the euro area Member States, the ECB and the ministers and central bank governors of the non-euro area Member States participating in the new mechanism, in accordance with a common procedure involving the Commission and following consultation of the Economic and Financial Committee.

Under the Agreement, intervention is, in principle, effected in euro and the participating currencies. The ECB and the NCB or NCBs concerned inform each other about all foreign exchange intervention. This involves either intervention at the margins or coordinated intramarginal intervention:

  • Intervention at the margins. Intervention at the margins is, in principle, automatic and unlimited. However, the ECB and the participating non-euro area NCBs may suspend automatic intervention if it conflicts with the primary objective of maintaining price stability;
  • Coordinated intramarginal intervention. The ECB and the participating non-euro area NCBs may agree to carry out coordinated intramarginal intervention.

Prior agreement of the NCB issuing the intervention currency other than the euro is obtained when another central bank of the European System of Central Banks (ESCB) uses the currency concerned in amounts exceeding mutually agreed limits.

A non-euro area NCB immediately notifies the ECB when it has used the euro in amounts exceeding the agreed limits.

A bank intending to carry out transactions other than intervention which involve at least one non-euro area currency or the euro and which exceed agreed limits must give prior notification to the central bank(s) concerned.

Interventions: providing very short-term financing

For the purpose of intervention in euro and in the participating non-euro area currencies, the ECB and the NCBs concerned open very short-term credit facilities for each other. These are for financing intervention at the margins and intramarginal intervention:

  • Financing of intervention at the margins. The very short-term financing facility is in principle automatically available and unlimited in amount for financing intervention in participating currencies at the margins. The ECB and the participating non-euro area NCBs may suspend automatic financing if it conflicts with maintaining price stability;
  • Financing of intramarginal intervention. The very short-term financing facility may be made available for intramarginal intervention with the agreement of the central bank issuing the intervention currency. However, the amount of such financing must not exceed the ceiling laid down in Annex II to the Agreement and the debtor central bank must make appropriate use of its foreign reserve holdings prior to drawing on the facility.

The initial maturity for a very short-term financing operation is three months. It may be automatically extended once for a maximum of three months, but the total amount of resulting indebtedness may at no time exceed the debtor central bank's ceiling as laid down in Annex II. Any debt exceeding that amount may be renewed for three months subject to the agreement of the creditor central bank. Any debt already renewed automatically for three months may be renewed a second time for a further three months subject to the agreement of the creditor central bank. Operations take the form of spot sales and purchases of participating currencies, giving rise to corresponding claims and liabilities.

Closer cooperation

At the initiative of a participating non-euro area Member State, exchange rate policy cooperation may be strengthened. Formally agreed fluctuation bands narrower than the standard one and backed up in principle by automatic intervention and financing may be set at the request of the Member State concerned.

Monitoring the functioning of the system

The General Council of the ECB monitors the functioning of ERM II and ensures the coordination of monetary and exchange rate policy and the administration of the intervention and financing mechanisms specified in the Agreement.

The Agreement provides for closer cooperation between the participating non-euro area NCBs and the ECB regarding exchange rates. Non-euro area NCBs not participating in ERM II cooperate with the ECB and the participating non-euro area NCBs in the consultations and/or other exchanges of information.

Amendments to the Agreement

This Agreement must be amended each time a new national central bank becomes party to the Agreement on the ERM II. It is also amended each time that a national central bank ceases to be party to the Agreement, specifically when the Member State adopts the euro as single currency.

The Agreement has therefore been amended to take into account Slovenia, Cyprus and Malta, Slovakia and Estonia joining the euro area, and also the entry of Romania and Bulgaria into the EU.



Entry into force

Deadline for transposition in the Member States

Official Journal

Agreement of 16 March 2006



OJ C 73 of 25.3.2006

Amending act(s)

Entry into force

Deadline for transposition in the Member States

Official Journal

Agreement of 21 December 2006



OJ C 14 of 20.1.2007

Agreement of 14 December 2007



OJ C 319 of 29.12.2007

Agreement of 8 December 2008



OJ C 16 of 22.1.2009

Agreement of 13 December 2010



OJ C 5 of 8.1.2011

Last updated: 19.09.2011