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UK Membership of the European Exchange Rate Mechanism

In: UK Monetary Policy

Author

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  • Paul Temperton

Abstract

As discussed in Chapter 7, the Delors plan for Economic and Monetary Union sees all EC member countries becoming members of the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) during Stage One. The UK has agreed to Stage One, which starts on 1 July 1990. No date has been set for the completion of Stage One. In this chapter we discuss in detail the issues facing UK membership of the ERM which, as discussed in Chapter 7, can be seen as quite separate from those involved in full European Economic and Monetary Union (EMU). We examine first of all the benefits and costs of entry and follow this by an assessment of the factors influencing the timing of entry. The mechanics of entry — the choice of central rate and the width of the bands, in particular — is then examined. The final section deals with perhaps the most important aspect — the effects of ERM membership on the conduct of UK policy. We draw upon the experience of capping sterling at DM3.00/£, discussed in the previous chapter, and recent econometric evidence on the effects of entry.

Suggested Citation

  • Paul Temperton, 1991. "UK Membership of the European Exchange Rate Mechanism," Palgrave Macmillan Books, in: UK Monetary Policy, chapter 9, pages 127-150, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11836-6_9
    DOI: 10.1007/978-1-349-11836-6_9
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