The European Monetary System (EMS) was an arrangement established in 1979 by the European Economic Community (EEC), the predecessor of the European Union (EU). The EMS aimed to foster monetary cooperation and stability among the member states by managing their exchange rates and limiting currency fluctuations within agreed-upon margins.

At its core, the EMS was founded on two key mechanisms: the Exchange Rate Mechanism (ERM) and the European Currency Unit (ECU). The ERM facilitated the stability of exchange rates between member countries' currencies by permitting limited fluctuations around central parity rates. This helped to prevent rapid and unpredictable currency movements, promoting economic certainty and facilitating trade within the community.

The ECU was an artificial currency unit used for accounting purposes. It was a weighted basket of member countries' currencies, providing a reference point for exchange rate calculations and a basis for financial transactions. The ECU served as a precursor to the euro, which later became the official currency of several EU member states.

The EMS played a crucial role in achieving economic convergence among member countries and paved the way for the establishment of the Economic and Monetary Union (EMU) in 1999. The EMU ultimately led to the adoption of the euro as the single currency of many EU nations, further enhancing economic integration and facilitating cross-border trade and investment.

Though the EMS was dissolved in 1999 with the full transition to the euro, its legacy remains significant. It laid the foundation for the monetary cooperation and stability that characterize the EU's economic framework today, fostering closer ties between European nations and enabling a more integrated and prosperous economic union.