BRIFT its value was fixed by the

BRIFT HISTORY OF THE EUROPEANS MONETARY SYSTEM AND ITS EVALUATIONSTO TALK ABOUT THE HISTORY OF THE EUROPEAN MONETARY SYSTEM WE HAVE TO START FROM THE INTRODUCTION INTERNATIONAL  MONETARY SYSTEM   TO THE BRETTON WOOD SYSTEM.An International Monetary System is essential to incentive economic transactions, giving different  countries the condition to participate effectively in the exchange of goods and services, stimulating their development as trade leads to a rational use of resources and higher consumption possibilities. To be effective, an international monetary system requires an efficient balance of payments adjustment mechanism so that deficits and surpluses can be eliminated in a short time.Before World War I, the prevailing international monetary system was the international gold standard. Gold constituted the international reserve asset and its value was fixed by the declared par value that countries specified. This condition to relate currencies with an internationally acceptable reserve asset (gold) helped contribute to relatively free trade and payments.With the advent of World War I, this standard broke down and in 1920 countries permitted a great deal of exchange rate flexibility. In the middle of that decade, Britain attempted to restore the gold standard, adopting the old prewar par value of the pound. That par value greatly overvalued the pound and caused payments difficulties for Britain. With the tremendous decline in the economic activity in the 1930s, payments difficulties emerge for many countries. Governments desperate to find foreign buyers for domestic products, made them appear cheaper by selling their national money below its real value, to undercut the trade of other nations selling the same products. This practice known as competitive devaluation merely evoked retaliations through similar devaluation by trading rivals. Because of uncertainty about the value of money, nations hoarded gold and money that could be converted into gold, further contracting the amount and frequency of monetary transactions among nations. These various actions led to great reductions in the volume and value of international trade. The measures also most likely worsened the Great Depression, and the low level of economic activity continued throughout most the 1930s. Economic activity spurted upward with the advent of World War II, but involvement in the war prevented comprehensive consideration and adoption of a new system of international paymentsBRETTON WOOD SYSTEM- Bretton wood system of 1971 was the first system used to control the value of money between different countries,it mean that each country had to have a monetary policy that kept the exchange rate of its currency within a fixed value plus or minus one percent in terms of gold,it was the first monetary order that organized monetary relations among independent nation states.So after the demise of the Bretton wood system in 1971 most of the European Economics communities (EEC) agreed in 1972 to maintain a stable exchange rates by preventing exchange rate fluctuations of morethan 2.2%(European currency snake),in march 1979 this system was replaced by the European monetary system (EMS)The European monetary system (EMS) was an arrangements that was built and established in the year 1979 for the purpose as following points such as follows1)Firstly to stablize the exchange rates among the then European community(EC) which is now known as European union memebers countries whom had wished to participate on it ,2) The European monetary systems came about due to high global inflations and economic stagnations that characterized much in the 1970s,the American  dollar (usd) which had served as a peg for the Europeans currencies was affected  by a ballooning American deficit,also the oil crises,a rapid rise in the demand for gold in world commodity market also with unemployement and stagflation at home.EXCHANGE RATE- This is a particular the value of one country currency in relation to the currency of another country,or other countries.The currency exchange rate of the European community (EC) members states had fluctuated higer against the American dollar(usd) because of the high domestic demands which refused to devalue, as a result the central banks of most western European countries in effort to stable their own currencies which were unable to purchase the inflationary American dollar(usd) which led to a negative thought against dollars here by driving its value down even further. European community (EC) members states were increasing unabled to solve  about this finanacial problems and that  was  the  reason that  gave birth to the European monetary system  which   was  out of fear that these monetary problems would spoil their  future  plans for the European economic integration.So the main  primary   purpose of the European  monetary  systems (EMS) was to stable   the currency exchange rate  among  all  the participating European  countries and here  by  also  protecting each members currency from the fluctuating  American  dollar(usd) and also  this  happen  because  of  due  to  the weaknesses in American fiscal policy  then. another important role  of the  European  monetary systems ( EMS) was the introductions of the European currency unit (EC), which  acted  as  a link or  plaform in  which  leads  to the final establishments   of the  single  euro currency.The European currency unit( ECU)  are  responsible in  determining   the  fate of  exchange rates among  the participating European community countries currencies through a centralized  sanctioned accounting systems model. the early years of the European monetary system (EMS) were marked by currency values with adjustement that raised the values of stronger currencies and lowered those of weak ones,However after  the year 1986 changes in national interest rate were specifically used  in keeping  all  the currencies more stable,EXCHANGE RATE MECHANISM (ERM)- One  of  the most important part of the European monetary system was to keep their currency exchange rate with bands which meant  that no country exchange rate could fluctuate more than 2,25% from central point.this was actually established to help maintaining a  stable commerce without  fear of contradiction in such  a way  that a sudden changes in currency  value  will   affect  the  trade and so therefore  its would encourage  the development of trading barriers among the  European community member states.European  currency  unit (ECU) was created during  the  process  mainly  to be used as a unit of account .although not a real currency the ECU became the idea of creating a single currency an idea that was realised with the lunch of the euro in 1999,so the exchange rate were to be pegged to an European currency unit, which  was also backed by pooling specified amount of members national currency,the amount of currency deposited by each member countries were  related to the economic strengths of that country,so this system mutually fixed exchange rates between these countries.  In  the  year 1994 the European union(EU) established an European monetary institute in order to transit to the European central bank(ECB) which was also established  in 1998 of which its primary responsibility  or  goals  was to establish a single monetary policy and interest rate working with National Banks also  including introducing the  single  EURO common currency,the European central bank( ECB) is also responsible for the controlling  and managing  inflations.Before the end of the  year  1998 most of the countries in the European Union nations cut their interest rates so that it would be easier  for them to promotes economic growth and prepare for the implementation of the euro,EMS was  substantially weakened but still alive• With In the meantime, Treaty of Maastricht had been signed and ratified (1991-1993) which foresaw establishment of new  monetary union   known  as  (EMU )and the European economic and monetary union (EMU) was then established succeeding the European monetary system as the new name for the common monetary and economic policy of the European union and the euro was fully adopted and brought into circulations by the European Union memeber states,EUROPEAN CENTRAL  BANK(ECB)The  European central  bank  was  establsihed  in the 1998, its  functions  as the central bank for the entire Eurozone. It defines monetary policy for all countries within the Eurozone and manages Europe’s single currency.The ECB operates completely independently of all European governments.IT REGULATING THE ECONOMY  AND PRICESThe ECB’s primary objective is to “maintain price stability”, while supporting “the Union’s general economic policies”.For the ECB, the objective of maintaining price stability translates in reality to an increase in prices close to, but under 2%.To do so, the central bank adjusts the benchmark interest rate, which is the rate at which commercial banks can borrow from the central bank. Lowering the interest rate stimulates greater consumption, which in turn initiates a trend towards higher prices. Conversely, raising the interest rate slows down consumption and prices.Exceptionally, the central bank can also change the amount of currency in circulation. It is generally considered that excess currency can lead to inflation, while an insufficient amount can restrict economic growth.The primary objective of the European System of Central Banks … shall be to maintain price stability.IT MANAGING AND COORDINATING THE EUROZONE The ECB also works to:Define and implement monetary policy in the EurozoneConduct foreign exchange operationsHold and manage the official foreign exchange reserves of each countryIssue bank notes in the EurozoneCollect and centralize statistics from national authorities and economic agentsAudit credit institutions in member StatesNATIONAL  CENTRAL BANKS AND THE ECB: who does what?The ECB defines policies for the Eurozone. It ensures that the different national central banks carry out decentralized operations in a consistent way.The national central banks are responsible for performing monetary policy operations in their respective countries. They carry out the actual transactions, supply currency to commercial banks, manage foreign exchange reserve operations for the ECB as well as their own foreign exchange reserves and contribute to the proper functioning of financial markets and payment instruments. They mint coin currency. Depending on the country, they may also perform specific functions attributed on a country-by-country basis: for example, the Bank of France performs special debt assistance activities.The ECB is not obligated to act as a lender of last resort but large integrated economies such as the European Union need to berunning smoothly, because other countries around the world might be dependent on that stability. Should a bank run into problems that require it to borrow, and that borrowing cannot be satisfied in private markets, the ECB may find that making credit available to that bank is preferable to allowing the instability that might result from insolvency.By not being required to act as lender of last resort, the ECB has theability to exercise judgment concerning which banks should be supported and which might be beyond help. EUROPEAN  UNION  COUNTRIES  THAT USES  EUROThe  following  19 Countries within the Eu zone  uses  euro  as  thier  single  currencyAustria       Belgium      cyprus     Estonia     France      Finland   Germany     Greece       Ireland       Italy         Latvia        Luxembourg   Lithuania  Malta  Netherland Portugal  Spain  Slovenia slovakiaEVALUATION OF THE EUROPEAN MONETARY SYSTEMThough the European monetary system has leads to the introduction of euro single currency which has then been used by the eurozone hereby reuducing transaction cost and increasing the number of trade integrations within the regions and making travel easy too, but some of the European monetary policy became evidence that certain countries  in the eurozone such as Greece,Portugal,Spain in particular has experience a national deficits that went on to become an Europe sovereign debt crisis which  without  its national currencies this countries could not  be   able to  devaluate their  currency   since  they  have  given  up  their  national  currencies  and  are  now  using  a  shared  single  currency (euro) with  other  european countries   making  it  imppossible  for  them  to  control  their  monetary  policy  since  is  a  shared  system   with  other  european  countries and they  were also not allowed to spend in order to offset their unemployement rates in  their  countries,  all  this  makes  it  impossible  for  such  countires  to  improve  since  they  cant  control  or  adjust  their  monetary  policy  or  even  to  devaluate their  money.Secondry   right  from the begining of  the  establishment of  the  European monetary system its   original policy  previously   intentionally prohibited the  beailout clause  from  other  rich european  countries  to   assisting the  ailling  poor  economies countries in the eurozone  such  as  countries like  Greece,Spain,Portugal  which are   experiencing   economic  harship  in the  European union (EU) membership  which  later  the European monetary union (EMU)  finally established a bailout clause measures to provide a relief to economically struggling European community members, In the  year   2012 the European stability mechanism a permanent fund to aid the struggling economies to European union members nations was implemented across the European union (EU),with new bailout measures and mandated austerity measures in the afflicted countries several economies such Ireland,Portugal and Spain had managed to  be  solidly recovering  but   however Greece continuing  been  stagnated  in  its economic recession,political strife and rampant unemployement rate continued in 2015,which  make  many  to  think  that   Greece participations in the eurozone  membership   remains uncertain   which  revealing one of the weakness of the original European monetary system policy in terms of the true European fiscal and political unit.so this make it very difficult for some of this countries with economic difficulty to adjust their economy or devalue their national currency through monetary policy since they now used a shared monetary policy and euro currency which is now control by the European central bank(ECB) IN  Germany  here by making it much difficult   such  countries  to  recover economically