Development of the European Monetary System

Abstract

From the beginning the objectives of the European Monetary System (EMS) were two-fold. First, the fixed-but-adjustable exchange rates based upon the augmented snake model were intended to reduce exchange-rate volatility in a flexible-rate world, and lessen the impact of international fluctuations on the large and growing intra-European trade flows. In addition, the willingness by the members to “fix” exchange rates prior to policy convergence was intended as a strategy to induce such convergence and, therefore, create consistent and lower inflation rates (Thygesen, 1988). The debate over symmetry shows that the objectives were not fully shared by all, perhaps especially by the French, in spite of the fact that the inflation of the 1970s had certainly been felt by all.