The Exchange Rate Mechanism (ERM) is a system designed to manage the exchange rates of currencies within a specific framework. It aims to stabilize currency values by limiting fluctuations between participating countries, which helps promote economic stability and trade. The ERM was notably used by the European Monetary System to prepare for the introduction of the Euro. Countries in the ERM agree to maintain their currency's value within a set range against a central currency, often the Euro or the U.S. Dollar. If a currency approaches the upper or lower limits of this range, the country may intervene by buying or selling its currency to maintain stability. This mechanism helps reduce uncertainty in international trade and investment.