Case study 1: the ERM crises of 1992-3
Put simply, as a precursor to full monetary union (the euro), the economies of the EU undertook a period of exchange rate management in order to create convergence and stability before full conversion to the euro. This took the form of the Exchange Rate Mechanism (ERM). It was a hybrid of fixed and floating exchange rates where currencies were allowed to float against each other but within a pre determined band. If currencies moved to the top or bottom of the band, the central banks were committed to intervene in the markets to stay within the band.
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