Currency Convertibility: The Gold Standard and Beyond

By Jorge Braga De Macedo; Barry Eichengreen et al. | Go to book overview

9

CONVERGING TOWARDS A EUROPEAN CURRENCY STANDARD

Convertibility and stability in the 1990s and beyond *

Jorge Braga de Macedo


INTRODUCTION

This chapter assesses the progress and prospects for European monetary unification in light of the historical experiences analyzed in the rest of this book.

The removal of restrictions on capital movement and the stabilization of exchange rates have been goals of European policy ever since the adoption of the Single European Act in the 1980s. Indeed, the roots of Europe's effort to create a stable, convertible currency system can be traced back to the early 1970s and the creation of the European Snake. The most recent and successful arrangement established in pursuit of this goal is the European Monetary System (EMS). The EMS, established in 1979, stabilized the exchange rates of its members within narrow bands subject to periodic realignments. The pace of monetary integration then accelerated in the second half of the 1980s. Starting in 1987 there were no further realignments of EMS currencies. At the Madrid European Council meeting in 1989, the report of the Committee of Central Bank Governors, chaired by European Commission President Jacques Delors, was accepted as a basis for economic and monetary union (EMU). The Delors Report urged the establishment of a single European currency and recommended completing the transition in three stages, with Stage I starting on July 1, 1990. The single currency was to be named after the European Currency Unit. We may thus refer to EMU as an ECU standard, even if the name of the currency is 'euro' instead.

The blueprint for the transition to EMU was agreed upon at the Maastricht meeting of the European Council in 1991. According to the Treaty on European Union signed at Maastricht, which took much of its inspiration from the Delors Report, Stage II, when final preparations for economic and

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