Exchange Rate Mechanism (ERM)

The Exchange Rate Mechanism (ERM) is a system used by countries to keep their currency values stable relative to other currencies. It involves setting agreed-upon exchange rate bands within which currency values can fluctuate. Central banks coordinate to maintain these rates, reducing sudden fluctuations that could harm trade and economic stability. The ERM helps provide predictability for businesses and investors, promoting economic stability and preparing countries for joining larger economic unions, like the Eurozone. It’s a tool to manage currency volatility and foster economic confidence among participating nations.