The European Monetary System-An Approximate Implementation of the Crawling Peg?

The European Monetary System (EMS) became operative on 13 March 1979 and has at the time of writing been in existence for little more than eight months. This is obviously too short a period for any careful and detailed assessment, particularly since one important currency in the European Communities (EC) — sterling — does not yet take part in the joint intervention system, while another — the lira — does so only with temporarily wider margins. Yet this initial period is sufficiently long to include the first realignment of the EMS currencies, which took place on 24 September 1979, as well as several periods of strain, some related to the weakening of the US dollar and others of a more internal European nature. These experiences together with the lessons learnt during the operations of the snake in the last few years prior to the launching of the EMS make it possible to attempt a rough characterisation of the kind of exchange rate mechanism which is embodied in the system. Given the aim of the present conference, particular attention will be given to the similarities between the EMS and a crawling peg regime and to the normative considerations involved in developing the EMS to more closely resemble such a regime along the lines suggested by John Williamson (Chapter 1). The tentative conclusion is that the EMS is already in practice moving in this direction and that it would benefit from doing so more openly and deliberately.