Old World at the end of the tunnel

Single European currency euro has deep roots in the history of the Old World Economy after the Second World War. Monetary integration in Europe was preceded by a long process of convergence, both economically and politically and in the legal aspects. The main problem in the monetary area, which experienced post-war European states, was the difficulty of stable exchange rates. During the postwar half-century has changed several currency regimes to facilitate this task, but only after the full transition to the euro, it will be finally resolved.

Bretton Woods recipes
At the International Conference on Finance, held at Bretton Woods (New Hampshire) in July 1944, JM Keynes first proposed the creation of an international monetary union. The proposal was rejected, but translated into a more modest step - in creating the International Monetary Fund. Each member of the IMF was to establish parity rate (official exchange rate of the currency to gold or to a reserve currency) and to avoid deviations from the parity rate of more than 1%. While the IMF charter, all currencies are recognized formally equivalent, in the center of the entire system placed gold and U.S. dollar. As the United States were the only countries expressing the value of its currency in gold, all other countries should fix parities of national currencies into U.S. dollars. Parity can be changed only after consultation with other members of the Fund.

The Charter of the IMF also requires that Member States introduce free convertibility of national currencies in current transactions. To do so, provided 3-year transition period. Establishment of national capital controls are not forbidden, but Member States were required to refrain from discriminatory measures, and multiple currency exchange rates.

It is easy to verify that two of the above conditions can not be performed simultaneously, if the country's trade balance is positive or negative balance for a long time. In such a situation, sooner or later, the mechanism of free convertibility of currencies would lead to the release rate beyond the 1% case the corridor. Therefore, the IMF received the right to provide financial support to countries experiencing balance of payments problems, and to impose sanctions against countries with a large positive balance of payments.

In practice, European countries required greater interaction in the monetary sphere, than the neighborhood in the ranks of the members of the IMF. Europe rebuilt and restored the damage caused by military action, which requires organized, pre-planned action in the economy. In these circumstances, the methods of free foreign exchange market is not a century. In 1948, in the framework of the "Marshall Plan" was established the first European integration association in the field of economics - The European Organization for Economic Co-operation (EOEC). The new organization was the predecessor of modern associations with two completely different functions: the Organization for Economic Cooperation and Development (OECD) and the European Monetary Union (EMU).

The next step in the integration process was the signing of the member countries EOEC agreement on the establishment of the European Payments Union (EPU). At its core, EPU was the clearing system, which allows its members to implement centralized netting on the export / import and ensuring repayment of surplus countries participating loans and gold, in accordance with the quota system. Unit of the Union was the equivalent of the U.S. dollar. Agreement entered into force on 1 July 1950.

EPU was established as an interim payment system intended to assist European countries "until such time as they will not be able to fully take its place in the world system."

Administration of the United States has made an initial capital of $ 350 million and also provided assistance to Member States EPU, with a structural debt. EPU has put forward the idea of balance of trade balance of its members and the elimination of discrimination in trade. Despite modest success in achieving these goals, EPU as multilateral payments scheme was considered successful.

As the restoration of convertibility to keep the stability of European currencies became more complicated. The question of transition to more stringent forms of mutual obligations. As a new instrument of monetary cooperation in 1955 was prepared by the European Monetary Agreement (EMA). It should have come into force after the country, representing more than 50% quota EPU, has announced his intention to introduce convertibility of their currencies for non-residents - holders of their currency, which occurred Dec. 27, 1958 Thus, EMA operated for 14 years .

The agreement provided for the establishment of a multilateral system of payments and the European Foundation. The main role of the multilateral system of payments was intended to mitigate the economic effects of changes in exchange rates. In the event of a change in the course of its currency, the country party EMA was obliged to repay the existing balance at the time of calculations with our partners in the old course.
The European Foundation has provided to member countries EMA credit secured gold (ie, duplicate the functions of the IMF at the European level). In 1961, EOEC "globalize" and was transformed into the OECD, and subsequently the European experience has been used worldwide.

1 Jan, 1973 came into force on the new exchange agreement on some or all of the participating OECD. In accordance with EMA was replaced by a global agreement, a European fund was abolished. Gold goes - jump courses During 1960 the dollar has gradually lost its ability to exchange for gold, but the treaty system of credit-reserve standard allows you to save at least a semblance of the gold standard.

The war in Vietnam led to the rise of inflation in the United States. In accordance with the rules of the IMF, the resulting glut of dollars in private foreign exchange market should have been absorbed by foreign central banks that were required to preserve the existing currency parities. However, this could give rise to depreciation of the dollar relatively strong currency countries (notably France, West Germany and Japan), the dollar gained on the requirements of huge sums.

The deficit of the U.S. official settlements reached unprecedented size - $ 10.7 billion in 1970 and likely $ 49.5 billion (annualized) in the III quarter of 1971.

August 15, 1971 United States formally announced the suspension of exchange dollars for gold. After this statement with a positive balance of payments, which have not yet switched to float their currencies, were forced to do so. December 18, 1971 in negotiations between the representatives of western countries in the Smithsonian Institution (Washington) had been agreed to multilateral review of exchange rates, resulted in the devaluation of the dollar to gold at 7.89%, while increasing the rates of many countries. As a result, the value of leading world currencies on the old dollar parity has grown by 7-19%. Some countries have resorted to adjusting the parity of their currencies, others raise or lower rates of national currencies to the dollar. In addition, new limits were set allowable fluctuations in the level of 2.25% of the new exchange rate that, in theory, preclude free floating currencies.

"Snake in the tunnel"
If the exchange rates of European countries participating in the agreement were able to range from minus 2.25% to plus 2.25% (ie in the range of 4.5%) to the U.S., then on each other's rates (calculated as the cross-rates) of plus 4.5% to minus 4.5%, ie in the range of 9%. European economists and big business representatives were concerned that the growth of intra-trade flows may be hampered in the long run, if the magnitude of fluctuations in rates of European currencies will become excessively large. As a consequence of these concerns, in March 1972, six members of the European Economic Community and the three State planning to accede to it, agreed to limit fluctuations between their currencies relative to each other range of 1.125% in one direction or another.

This agreement is known as the "snake in the tunnel" (the official name - the European Agreement on a uniform). It establishes that the rates of European currencies relative to each other fluctuate within a narrow range, limited 2.25% ( "snake"), with fluctuations in the broader range (4.5%) relative to other currencies, the world ( "tunnel"). Courses European currencies continue to be able to fluctuate against the U.S. dollar and currencies of other non-European countries in a fairly wide range, but their fluctuations relative to one another should decrease.

At the same time include the European countries move away from the dollar as the basic unit of reciprocal exchange calculations. The dollar has lost a gold support and formally turned into a series of currency.

In 1975 the first prototype of the euro - the so-called European unit of account (EUA), the cost of which for the first time in European practice was based on the value of a basket of currencies. The final design of the European Economic Community (EEC) in 1967, an agreement on the "serpent in the tunnel" and the introduction of EUA prepared Europe for the penultimate phase of monetary integration.