Since its inception, the European Monetary System (EMU) has attracted great attention as a structure coordinating political relations.
Frustrated by the prospects of a global monetary system with its floating rate, the founding fathers of EMU intended to restore a system of fixed but regulated exchange rates in most of the European Community. Such a system would protect huge domestic European trade flows from sudden changes in competitiveness. It would also limit the discrepancy between national inflation rates, allowing for the establishment of less volatile inflation and leading to a “zone of monetary stability”.
At the same time, the European monetary system was evaluated as an extremely ambitious project, since it returned to the European administration the currencies of some countries, primarily France and Italy, which remained alienated from earlier attempts to unite.
The system subsequently evolved beyond its original goals: the mechanism for controlling the exchange rates of the European Economic Community (EEC) has become tougher, the coherence of monetary policy is more defined, capital mobility is higher than it was in the first years of EMU.
Everything in the world is interconnected, especially in the field of monetary relations at the global level. Therefore, a few words should be said about the world monetary system as a whole, which has gone through several stages of development:
· The Paris monetary system (1816-1914), based on the gold standard.
· Gold bullion standard (1914-1941), which provided for the exchange of paper money for gold bullion weighing at least 12.5 kilograms.
Together with gold, over time, US dollars and pounds began to be accepted for international payments.
· In 1922, a conference was held in Genoa that brought together representatives of 34 countries to discuss aspects of monetarism after the end of the First World War, a strategy for the restoration of Central and Eastern Europe, and an agreement between the European capitalist economies and the new Soviet regime.
Then the Genoese monetary system (1922-1944) was formulated, the basis of which was the gold exchange standard.
· Since World War II, attempts have been made to maintain stability among major currencies through a fixed-rate system called the Bretton Woods Agreement, which collapsed in the early 1970s.
Nevertheless, European leaders sought the principle of stable rates, abandoning the policy of floating rates, popular in the United States.
Most countries agreed in 1972 to maintain foreign exchange relations. And the monetary system, dubbed the “European Currency Snake,” was supposed to prevent exchange rate fluctuations by more than 2.25 percent.
This was the first attempt at cooperation in the field of monetary relations and, in essence, it connected all the currencies of the EEC with each other. Although the regime more or less existed until 1979, it actually began to fall apart since 1973, due to the free fluctuation of the dollar.
The European monetary system was founded in 1979 in order to stabilize the exchange rates of economic communities that are members of the European Union. At the same time, a European monetary unit (ECU) appeared, based on a basket of national currencies. ECU was the forerunner of the Euro.
In the early stages, the movement was not completely successful; there were many difficulties of a technical nature. Periodic adjustments strengthened the value of strong currencies and lowered weaker ones.
However, after 1986, changes in national interest rates were used to maintain currencies within a narrow range (from the mutual central rate). The countries participating in the process had to comply with the established unit, which was a decisive contribution to the fight against inflation.
The United Kingdom did not join in establishing the correct exchange rate mechanism (IAC) for all participating states until 1990. She was forced to abandon him again in 1992, because she could not remain within the limits of the MVK.
The project, however, continued to develop in accordance with the Maastricht Treaty, which confirmed the importance of the collective structure.
In 1999, when the Euro appeared , the European monetary system ended its existence, despite the fact that the exchange rate mechanism continues to work.