Inevitable Disappointment? The ERM as the framework for UK monetary policy 1990-92

The UK entered the ERM in October 1990 in search of an alternative policy framework and nominal discipline to monetary targets, but entry was dominated by short term considerations and the constraints implied by membership were not properly understood. The UK left the ERM in September 1992 after the failure of a high-risk strategy resulting from the authorities' refusal to accept the constraints imposed by the ERM in that period. Thus, the crisis of Black Wednesday should be seen as the almost inevitable result of the failure of the UK monetary authorities to understand either the full benefits and costs involved in membership of the ERM, or how their own behaviour needed to be modified for membership to be sustained.