European Exchange Rate Mechanism

No.

So I don't know if you remember, I think it's ERP.

So back then, the country was, or mortgages, they had like a basket of currencies to the EU and stuff like that.

And everything was linked and locked to, I can't, I'm saying ERP, I can't remember what it was, but it was a mechanism that Europe and the UK signed up to, to keep the currencies, because back then, I think it was before the euro, but the currencies were all linked together.

Well, the Chancellor of the time, whose name, he's dead now, but I can remember the announcement because he had to take us off whatever that mechanism was.

And

bet against the British pound apparently it was a billion dollar a billion pound bet and Britain was trying to stay inside this band you had to stay to become part of the euro system the European you had to stay in a band not going higher than a certain level or lower than a certain level against the which was the precedent to the euro.

And Britain was constantly at the bottom of the range, and the pressure was building as people started to speculate that Britain would come out of the ERM, the exchange rate mechanism.

And as the pressure grew, the British government was spending money all its foreign exchange reserves, trying to buy pounds to support the pound until suddenly it realized it couldn't afford to spend any more or it shouldn't spend any more.

And it announced they were going to stop defending the pound.

The Britain had tried to defend it in the hours before this, before they withdrew.

They raised interest rates, I think, from 10% to 12%, and then from 12% to 15% in a single day.

And then after they withdrew from the ERM, they lowered them back to where it was before, which I think was 8%.

A great example, and that currency thing I saw, I started seeing recently what's happening in India, and obviously the famous example of Japan as well.

Because in 1992, you have this event known as Black Wednesday.

So at the time, the UK was part of the European Exchange Rate Mechanism, or the ERM-

Right

... which, if I understand correctly, was essentially a system designed to tie European currencies together to prevent these extreme fluctuations.

If the French economy was doing well, then there would be money flowing into the country through investment, and that increased demand for the currency would drive its price up.

But under the European Exchange Rate Mechanism, the rate needed to be kept within a particular range so that it didn't deviate too much from the other European currencies, which is where the Central Bank of France, the Banque de France, played its role.

If the franc was getting too strong, then the central bank would sell lots and lots of that currency in order to increase the supply and decrease its rate, and vice versa.

If the currency was too weak, then they would use their foreign exchange reserves to buy more of the currency, increase the demand, and therefore its rate relative to the other European currencies.

She could see that joining would create an impossible task for the Bank of England, which would have to simultaneously strengthen the pound and stimulate a quickly deteriorating British economy.

But other members of the Conservative political party she led saw things differently, and with her power weakening within the party, she finally conceded.

The United Kingdom became a member of the Exchange Rate Mechanism.

The United Kingdom joining the ERM was a transparent display of the problems created by a currency peg of this nature.

Having defaulted on its debt, suddenly, you know, fiscal policy becomes a lot easier and things get to normal relatively quickly.

I remember when Britain crashed out of the ERM, the Exchange Rate Mechanism in '92, people predicted all sorts of horrible things.

Or when Britain had Brexit, people thought there would be like a 10% fall in GDP.

None of this happened.

Hmm

... uh, dude who, who managed to pull the, uh, British pound out of something called the European Exchange Rate Mechanism in the early 1990s and made a billion pounds on that trade.

Anyway, Sorof- Soros is a hard, you know-

Left

Sweden is obliged by treaty to join the euro.

They avoid it simply by not joining the ERM, the Exchange Rate Mechanism.

Same thing can be done with Schengen if you just don't apply to join after committing to be in it.

And so I'm not sure the EU would insist on these things being part of the treaty when actually them being part of the treaty is kind of meaningless, or at least not enforceable.