exchange rate bands

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Limits to variations in exchange rates. A country commits itself to hold the exchange rate between its own currency and some foreign currency or currencies within a limited band. Exchange rate bands may be broad or narrow: under the Exchange Rate Mechanism, for example, members of the European Monetary System agreed to keep their currencies within 2 percent of parity with the European Currency Unit, an average of European currencies, while the UK and Italy only committed themselves to broader bands, of 6 percent each side of parity.

Subjects: Economics.

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