GHDI logo

The European Monetary System (December 6, 1978)

page 3 of 4    print version    return to list previous document      next document

While still insufficient, it is certainly a huge turnaround compared with the trends of the early 1970s, when inflation rates rose steeply, reaching double figures – sometimes even up to 20 percent annually. A reversal has taken place here. Certainly the policies of our country have had their share in this development. Only on the basis of reversing the trend being pursued by the countries can one venture to establish a monetary community like the one that will be formed now. [ . . . ]

The most important aspects of the exchange-rate and intervention systems are in complete agreement with the demands that were put forth jointly by the Bundesbank [German Federal Bank] and the federal government over the course of the summer and fall.

In particular, I would like to mention, first, that the obligations of all participants to intervene in the foreign exchange markets – that is, buying weak currencies with one’s own currency or selling strong currencies against one’s own currency, as, for example, in the “snake” up to now – have been clearly determined. These obligations for intervention have been clearly determined.

Second, no special regulations are envisioned for the settlement of balances in special cases.

The system also contains elements that definitively distinguish it from the previous currency group referred to as the “snake.” Among them are: first, the European Currency Unit, or ECU, which did not exist up to now, and which is being created by the participating central banks with deposits of gold and foreign currencies.

The experts speak here of ECU I, since later there will also be an ECU II – when the European Monetary Fund will be legally established through a treaty requiring ratification. It will be possible to obtain ECU II from the European Monetary Fund under certain circumstances and with limited tranches against payment with one’s own national currency. But we are not at that point yet.

“ECU” is a French pronunciation of the English acronym for European Currency Unit. I have nothing against getting used to calling it ECU. The French like the sound of it; hundreds of years ago they had a coin that was called an ecu.

The second difference vis-à-vis the previous “snake,” which I already mentioned earlier, is that countries that join later will be able to do so with a large margin of ± 6 percent for their exchange rates. I cannot welcome that [provision], as I have already indicated, but it is a significant difference.

first page < previous   |   next > last page