European Monetary System facts for kids

The European Monetary System (EMS) was a special plan where many countries in the European Economic Community (EEC) worked together to link their money. It was started in 1979 by Roy Jenkins, who was the leader of the European Commission at that time. The main idea was to make trade and business easier between these countries by keeping their currencies stable against each other.

What Was the EMS?

The European Monetary System (EMS) was set up to help countries in Europe keep their money's value steady. Imagine if you travel from one country to another, and the value of your money changes a lot every day. That would make buying and selling things very tricky! The EMS tried to stop this by making sure that the currencies of member countries didn't swing too wildly in value.

Why Was the EMS Created?

Before the EMS, countries in Europe sometimes had problems with their money's value going up and down a lot. This made it hard for businesses to plan and trade with other countries. For example, if a company in France sold something to a company in Germany, they needed to know how much the German money (Deutschmark) would be worth compared to the French money (Franc) when the payment was made. The EMS aimed to create a more stable environment for trade and economic growth.

How Did the EMS Work?

The EMS had a few main parts:

• Exchange Rate Mechanism (ERM): This was the most important part. It meant that each country's currency had a central value against a special "basket" of all the other EMS currencies. This basket was called the European Currency Unit (ECU). The currencies were allowed to move a little bit up or down from this central value, but not too much. If a currency started to move too far, the central banks of the countries would step in to buy or sell that currency to bring its value back in line.
• European Currency Unit (ECU): The ECU was like a made-up currency that didn't exist as coins or banknotes. It was a way to measure the average value of all the EMS currencies. It was used for things like setting central rates and for some financial transactions between central banks.

The End of the EMS

The European Monetary System worked for many years, helping to bring more stability to Europe's economies. However, it faced some challenges, especially in the early 1990s. Eventually, the EMS was replaced by something even bigger and more unified: the Euro. The Euro is a single currency used by many countries in Europe today, which was the ultimate goal of the stability that the EMS tried to create.

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