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De facto Monetary Union through forward interventions

  • European Monetary System
  • Published:
Intereconomics

Abstract

The crises suffered in 1992/93 by the old EMS with its narrow exchange rate bands were largely due to the fact that the central banks' unlimited spot intervention obligations held little credibility for speculators. How can a credible exchange rate guarantee be achieved by improving the intervention mechanism?

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References

  1. Cf. Christian Hacke: Von Kennedy bis Reagan-Grundzüge der amerikanischen Außenpolitik 1960–1984, Stuttgart 1984, pp. 33 ff.; also Helmut Schmidt: Strategie des Gleichgewichts, Stuttgart 1969, pp. 62 ff.

  2. Olaf Sievert: Deutsche Geldpolitik zwischen nationalem Interesse und europäischer Rücksichtsnahme?, in: Auszüge aus Presseartikeln der Deutschen Bundesbank, Nr. 91 (1993), p. 7.

  3. “Großbritanniens Probleme mit dem Währungsverbund”, in: Neue Zürcher Zeitung, 29./30.9.1992.

  4. For the way the EMS works cf.: Commission of the European Communities: The European Monetary System, Brussels 1979; also the systematic presentation in: Peter Bofinger: Festkurssysteme und geldpolitische Koordination, Baden-Baden 1991, pp. 337–377.

  5. Cf. Barry Eichengreen, Charles Wyplosz: The unstable EMS, Brookings Papers on Economic Activity, 1:1993, Washington DC, pp. 109f.

  6. Cf. Wolfgang Stützel: Über Währungsspekulaten und den Umgang mit denselben, in: Wolfgang Stützel: Währung in weltoffener Wirtschaft—Lehrstücke der Währungspolitik unter der Herausforderung des Tages, Frankfurt 1973, p. 137; also the table in this paper taken from: Barry Eichengreen, Charles Wyplosz, loc. cit. The unstable EMS, Brookings Papers on Economic Activity, 1∶1993, Washington DC, pp. 109 f

  7. Lans Hörngren, Hans Lindberg: The Struggle to Turn the Swedish Krona into a Hard Currency, Sveriges Riksbank, Arbetsrapport No. 8, Stockholm 1993, p. 23

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  8. Cf. Peter Bofinger, loc cit. Festkurssysteme und geldopolitische Koordination, Baden-Baden 1991, pp. 88–176 and pp. 337–377; also Robert Vehrkamp: The European Monetary System during the phase of transition to European Monetary Union, Economic Papers (European Commission), No. 108, July 1994, pp. 9–44. For a similar approach cf. Ronald I. McKinnon: The Rules of the Game: International Money in Historical Perspective, in: Journal of Economic Literature, Vol. 31 (March 1993), pp. 1–44.

  9. for a description of the realignment procedure cf. Andreas Kees: The Monetary Committee of the European Community, in: Kredit und Kapital 2/1987, pp. 258–268. For the interpretation of this situtation from the point of view of a hard currency central bank cf. Fritz Scholl: The domain of speculators or a place to correct untenable exchange rate relationships, in: The Treasurer, October 1993, p. 55.

  10. For the principles of forward intervention theory cf. Egon Sohmen: Wechselkurs und Währungsordnung, Tübingen 1973. pp. 83–131; also the stimulating illustration and interpretation of the relevant context in Wolfram Engels: Notenbanktechnik: Instrumente und Verfahren der monetären Stabilitätspolitik, Frankfurt/Main 1979, pp. 24–53.

  11. For a general illustration of the mechanics of speculative attacks on the exchange rate promises in fixed rate systems cf.: Morris Goldstein et al.: International Capital Markets-Part I: Exchange Rate Management and International Capital Flows, International Monetary Fund, Washington 1993; also, particularly informative on the course of the autumn 1992 EMS crisis: Group of Ten: International Capital Markets and Foreign Exchange Markets—A Report to the Ministers and Governors, Rome 1993.

  12. Leland B. Yeager: International Monetary Relations: Theory, History and Policy, New York 1976, p. 280.

  13. Cf. Peter Fischer-Erlach: Handel und Kursbildung am Devisenmarkt, Stuttgart 1991, pp. 82–88; also the discussion of the relevant literature in Leland B. Yeager, loc cit., International Monetary Relations: Theory, History and Policy, New York 1976, pp. 279–285

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Authors and Affiliations

  1. University of Witten-Herdecke, Germany

    Robert Vehrkamp

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  1. Robert Vehrkamp
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Vehrkamp, R. De facto Monetary Union through forward interventions. Intereconomics 30, 111–116 (1995). https://doi.org/10.1007/BF02927265

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