Under the monetary arrangements with the UK, which lasted from 1922 to the end of 1978, the Irish pound remained tied to sterling on a one-to-one no-margins basis. Sterling was exchanged at parity in all banks with no charge and sterling circulated freely within Ireland.
When Ireland joined the European Monetary System when it was established in 1979, adherence to the Exchange Rate Mechanism of the EMS provided more flexibility, particularly under the wider bands, but nevertheless monetary policy remained relatively constrained. Moreover, fluctuations in the bilateral rate of the Irish pound with sterling frequently created uncertainty and consequently introduced short-term fluctuations in interest rates.