Exahange rate mechanism consist of several member currencies, which are fixed against each other. Although minor variations may exist between them in accordance with European Currency Unit (ECU) rate.
Exchange rate mechanism made it's revision in 1 January 1999 and eventually introduced the idea of single European currency, termed as euro.
A grid of bilateral rates ( bilateral rate is an exchange rate between two currencies. Bilateral exchange rate is a ratio of the amount one has to pay in one currency to purchase one unit of another currency) were computed on the basis of central rates in terms of ECU.
ERM operation
The ERM is devised on the concept of fixed currency exchange rate margins(A fixed exchange rate is a type of exchange rate mechnism, where one currency value is equated to the value of another single currency, or to another measurement of value).Exchange rates
Theoretically, the currencies can vary as much as 15% from their designated value but practically the currencies are pegged closely to the central rate.Some of the currencies and their respective codes are summarized as below:
- Cypriot pound, coded as CYP
- Danish krone, coded as DKK
- Danish krone, coded as DKK
- Estonian kroon, coded as EEK
- Lithuanian litas, coded as LTL
- Latvian lats, coded as LVL
