An Examination of Irish Currency Policy. ESRI Policy Series No. 18. October 1993

Honohan, Patrick (1993) An Examination of Irish Currency Policy. ESRI Policy Series No. 18. October 1993. [Policy Paper]

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Abstract

The signature of the Maastricht Treaty, which was intended to usher in currency stability by transforming the European Monetary System (EMS) into an Economic and Monetary Union (EMU) with a single currency, was instead followed within months by the worst currency crisis for two decades. Ireland was hit by the crisis as badly as any region in the Community and the whole experience had already brought the issue of currency policy to centre stage when, at the end of July 1993, the EMS quite suddenly collapsed under pressure of a new wave of speculation directed mainly against the French franc. This paper reviews Ireland's experience in the EMS and asks whether any changes in currency policy are suggested by recent events. Increasing complacency about the stability of the system over the past five years led to realignment policy within the system becoming too rigid. Its last months highlighted the weaknesses of such a system from Ireland's point of view, including its vulnerability to speculation and the volatility which it entails for the Irish pound-sterling exchange rate.

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