Exchange Rate Mechanism

System established in 1979 for controlling exchange rates within the European Monetary System of the European Union (EU) that was intended to prepare the way for a single currency. The member currencies of the ERM were fixed against each other within a narrow band of fluctuation based on a central European Currency Unit (ECU) rate, but floating against non-member countries. If a currency deviated significantly from the central ECU rate, the European Monetary Cooperation Fund and the central banks concerned stepped in to stabilize the currency.

The ERM was revised from 1 January 1999, with the launch of the single European currency (euro), and Greece and Denmark became members of ERM II (a structure linking the currencies of some non-participating member states to the euro). Greece then became a full member of the eurozone on 1 January 2001. The United Kingdom (which had withdrawn from the mechanism in turbulent circumstances in October 1992) and Sweden were, in 2001, not members of the ERM.