Does exchange rate pegging foster monetary credibility? The European Monetary System and the 1980s disinflation

At the centre of our policy to get inflation down has been entry into the European Exchange Rate Mechanism on October 5. Belonging to this anti-inflationary club sends an important message to the financial markets and to our competitors…. Despite this, we still hear siren voices telling us we should devalue the currency by realigning our ERM rates. We will not heed those voices. Consequently, there is no question of a cut in interest rates that is not fully justified by our position in the ERM.