Forex Investment and Currency Trading

At about the same time as the Smithsonian Agreement, European countries established a European Joint Float. The nations that joined this system included West German, France, Italy, the Netherlands, Belgium, and Luxembourg. The basic system was close to the exchange rate regime established at Bretton Woods.

The European Joint Float failed at about the same time as the Smithsonian Agreement, but the decision among the Europeans to work together economically remained in place. The European countries began working together officially in 1957, long before the European Joint Float, under a treaty that formed the European Economic Community.

When the European Joint Float failed, the European nations worked together to form the European Monetary System (EMS) in 1979 which included most of the nations of the European Union. The goal of the EMS was to stabilize foreign exchange and counter inflation among the members of the EMS.

Periodic adjustments raised the values of the currencies whose economies were strong and lowered the values of the weaker ones. By 1986, a simpler system based on national interest rates was used to manage the currency values.

By the early 1990s, the EMS started to show strains, especially after Germany was reunited. Many European countries had very different economic policies, and faced varied economic conditions. Great Britain permanently withdrew from the EMS in 1991.

The EMS began efforts in the 1990s to establish a common currency in Europe. Its first step was to create the European Central Bank in 1994. By 1998, the bank was responsible for setting a single monetary policy and interest rate for the nations that chose to participate.

At the same time as the European countries moved to coordinate currency exchange, they also worked toward political and defense cooperation. The European Union (EU) was formed in 1991 with the Treaty of Maastricht.

By 1998, the first members of the European Central Bank were Austria, Belgium, Finland, France, Germany, Ireland, Luxembourg, the Netherlands, Portugal, and the Spain. All cut their interest rates to a nearly uniform low level with the hope that this would promote growth and prepare for the unified currency. In 1999, the unified currency, the Euro, was adopted by these countries.

Euro coins and notes did not begin to circulate until January 2002. Within two months, local currencies were no longer accepted as legal tender within the countries that had adopted the Euro.

Great Britain is not the only European nation that has decided not to adopt the Euro. Demark and Sweden also decided to maintain their currencies. Citizens of all three countries oppose the adoption of the Euro.

None of the countries that joined the EU since the fall of the Soviet Union have adopted the Euro either, but several are working to meet the economic requirements to do so. Countries must meet strict economic guidelines before becoming part of the EMS and adopting the Euro. These requirements set limits on allowable government deficits and interest rates.