European Monetary System

The European Monetary System was a framework launched in 1979 to coordinate exchange rates among participating European currencies, chiefly through the Exchange Rate Mechanism and the European Currency Unit.

Exchange Rate Mechanism: A system of exchange-rate bands that limited fluctuations among participating European currencies. Its intervention bands were the EMS’s main instrument for stabilizing currency values.
Bretton Woods system: The postwar international monetary order of fixed but adjustable exchange rates, centered on the U.S. dollar and gold. Its collapse in the 1970s intensified European efforts to stabilize exchange rates among themselves.
Valéry Giscard d'Estaing: French president from 1974 to 1981 who promoted closer monetary cooperation with West Germany. His partnership with Helmut Schmidt helped launch the EMS.
Single European Act: A 1986 treaty that amended the European Communities’ founding treaties and set a timetable for a single market. The single market strengthened pressure to reduce currency volatility within the EMS.
European Monetary Union: The process of integrating European states’ monetary policies, culminating in a shared currency for participating countries. Unlike the EMS, monetary union removes exchange rates between participating national currencies.
European Currency Unit: A weighted basket of European Community currencies used as a unit of account. The ECU served as the EMS’s reference unit for exchange-rate calculations and reserves.
Werner Report: A 1970 plan proposing a gradual European economic and monetary union. It set out an earlier route toward monetary integration that the EMS partially revived.
Helmut Schmidt: West German chancellor from 1974 to 1982 who supported European monetary cooperation. Schmidt negotiated with Giscard d'Estaing over the EMS’s creation.
Delors Report: A 1989 report outlining a three-stage plan for European economic and monetary union. It transformed experience with the EMS into a proposed institutional route to monetary union.
Floating exchange rate: An exchange-rate regime in which a currency’s value is determined primarily by foreign-exchange market supply and demand. The EMS limited exchange-rate movement, unlike a freely floating currency regime.

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