Is it possible for an EU Member State to keep its currency board in place when joining ERM II?
ERM II is a multilateral arrangement in which non-euro area Member States’ currencies are pegged to the euro and in which decisions are taken by mutual agreement of the parties concerned. A Member State can maintain a euro-based currency board arrangement (CBA) as a unilateral commitment within ERM II provided that there is a mutual agreement about the fixed exchange rate prevailing under the CBA and which then serves as that currency’s ERM II central rate. CBAs that are not based on the euro are not compatible with participation in ERM II. More generally, the Governing Council of the ECB neither encourages nor discourages the adoption of CBAs. In any event, such arrangements cannot be regarded as an alternative to two years’ participation in ERM II (see question 4 and the “Policy position of the Governing Council of the ECB on exchange rate issues relating to the acceding countries” published on 18 December 2003 and referred to above).
