European Exchange Rate Mechanism facts for kids
The European Exchange Rate Mechanism 2 (ERM 2 or ERM II) is a special system created by the European Economic Community on January 1, 1999. It's like a training ground for countries that want to use the euro currency.
Before the euro was created, this system helped keep different European currencies stable. Now, its main job is to link the money of EU countries that don't yet use the euro to the euro itself. This helps make sure their money stays steady and doesn't change value too much.
As of 2020, three currencies are part of ERM II: the Danish krone, the Croatian kuna, and the Bulgarian lev.
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What is ERM 2?
The ERM 2 system helps countries prepare to join the Eurozone, which is the group of EU countries that use the euro. When a country joins ERM 2, its currency is linked to the euro. This means its value can only move within a certain range compared to the euro.
Why is it important?
Keeping a country's currency stable is very important for its economy. If a currency's value jumps up and down a lot, it can make trade difficult and scare away investors. ERM 2 helps countries show that they can manage their money well and keep it stable. This is a key step before they can officially adopt the euro.
How does it work?
When a country joins ERM 2, it agrees to keep its currency's value close to a central rate against the euro. There's a small band, usually 15% above or below this central rate, where the currency is allowed to move. If the currency starts to go outside this band, the country's central bank and the European Central Bank might step in. They can buy or sell the currency to bring its value back within the agreed limits. This helps prevent big, sudden changes in the currency's value.
Countries in ERM 2
Many countries have been part of the ERM system over the years. Some have successfully joined the Eurozone, meaning they now use the euro. Others have left the system or are still preparing.
Current members
As of recently, the main countries participating in ERM II are:
- The Danish krone (Denmark)
- The Croatian kuna (Croatia)
- The Bulgarian lev (Bulgaria)
These countries are working to keep their currencies stable as they consider adopting the euro in the future.
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See also
In Spanish: Mecanismo de tipos de cambio para niños
