Exchange Rate Mechanism

The Exchange Rate Mechanism (ERM) is a system used by countries to manage their currency values in relation to one another. It aims to stabilize exchange rates and reduce fluctuations between currencies. Countries participating in an ERM agree to keep their currency's value within a specific range against a reference currency, often through monetary policies or interventions. This stability helps facilitate trade and investment by reducing uncertainty in currency values, making it easier for businesses and consumers to operate internationally. The ERM was notably part of the European Monetary System before the introduction of the euro.