Exchange rate mechanism between the euro and other participating national currencies

 

SUMMARY OF:

Resolution of the European Council on the establishment of an exchange-rate mechanism

Agreement between the European Central Bank and the central banks of EU countries outside the euro area laying down the operating procedures for an exchange rate mechanism in Economic and Monetary Union

WHAT IS THE AIM OF THE RESOLUTION AND THE AGREEMENT?

• The resolution aimed to create a system between euro area and non-euro area countries that guaranteed exchange-rate stability between their different currencies when the third stage of economic and monetary union began on 1 January 1999.
• The agreement builds on the resolution, and repeals and replaces a similar agreement reached in 1998. It establishes a stable exchange-rate mechanism (ERM II), replacing the original European Monetary System, between the euro and the national currencies of EU countries not adopting the euro but participating in the agreement. Currently, the Danish kroner is the only currency in the ERM II.
• The aim is to avoid excessive exchange-rate fluctuations disrupting the single market.

KEY POINTS

• The agreement:
  • confirms that participation in ERM II is voluntary for non-euro countries with an opt out from the single currency, but adds they are expected to participate;
  • provides for a central rate — agreed by the European Central Bank (ECB) and the relevant national central bank — between the euro and each participating national currency. This may fluctuate 15% in either direction;
  • allows for automatic and unlimited intervention by the ECB and the national central bank if the 15% limit is crossed;
  • establishes detailed procedures for
    • involvement of a euro area national central bank in any intervention;
    • very short-term credit facilities between the ECB and a non-euro area national central bank;
    • repayment of outstanding very short-term financing balances;
    • extension of any financing operation;
    • closer exchange-rate cooperation between the ECB and non-euro area national central banks;
    • monitoring of the overall ERM II system;
    • possible amendments of the central rates and the 15% fluctuation limits.
• The agreement must be amended whenever a new national central bank participates. All the amendments are listed in the ‘Related documents’ section.

FROM WHEN DO THE RESOLUTION AND AGREEMENT APPLY?

• The resolution has applied since 16 June 1997.
• The agreement has applied since 1 April 2006.

BACKGROUND

• Convergence of basic economic performance is essential for maintaining a stable exchange rate. A stable economic environment is necessary for the single market to operate properly and to promote higher investment, growth and employment.
• The exchange-rate mechanism gives non-euro area EU countries a reference for sound economic policies, enabling them to prepare to adopt the euro.

MAIN DOCUMENTS

Resolution of the European Council on the establishment of an exchange-rate mechanism in the third stage of economic and monetary union Amsterdam, 16 June 1997 (OJ C 236, 2.8.1997, pp. 5–6)

Agreement of 16 March 2006 between the European Central Bank and the national central banks 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 (OJ C 73, 25.3.2006, pp. 21–27)

RELATED DOCUMENTS

Agreement of 21 December 2006 between the European Central Bank and the national central banks of the Member States outside the euro area amending the Agreement of 16 March 2006 between the European Central Bank and the national central banks 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 (OJ C 14, 20.1.2007, pp. 6–8)

Agreement of 14 December 2007 between the European Central Bank and the national central banks of the Member States outside the euro area amending the Agreement of 16 March 2006 between the European Central Bank and the national central banks 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 (OJ C 319, 29.12.2007, pp. 7–9)

Agreement of 13 December 2010 between the European Central Bank and the national central banks of the Member States outside the euro area amending the Agreement of 16 March 2006 between the European Central Bank and the national central banks 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 (OJ C 5, 8.1.2011, pp. 3–6)

Agreement of 21 June 2013 between the European Central Bank and the national central banks of the Member States whose currency is not the euro amending the Agreement of 16 March 2006 between the European Central Bank and the national central banks 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 (OJ C 187, 29.6.2013, pp. 1–4)

Agreement of 13 November 2014 between the European Central Bank and the national central banks of the Member States outside the euro area amending the Agreement of 16 March 2006 between the European Central Bank and the national central banks 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 (OJ C 64, 21.2.2015, pp. 1–4)

last update 11.04.2017