Floating exchange rate
Posted by Ripon Abu Hasnat on Friday, June 13, 2014 | 0 comments
A floating exchange rate or fluctuating
exchange rate is a type of exchange-rate regime in which a currency's value is
allowed to fluctuate according to the foreign-exchange market. A currency that
uses a floating exchange rate is known as a floating currency. A floating
currency is contrasted with a fixed currency.
In the modern world, most of the
world's currencies are floating; such currencies include the most widely traded
currencies: the United States dollar, the euro, the Norwegian krone, the
Japanese yen, the British pound, the Swiss franc, and the Australian dollar.
However, central banks often participate in the markets to attempt to influence
the value of floating exchange rates. The Canadian dollar most closely
resembles a "pure" floating currency, because the Canadian central
bank has not interfered with its price since it officially stopped doing so in
1998. The US dollar runs a close second, with very little change in its foreign
reserves; in contrast, Japan and the UK intervene to a greater extent.
From 1946 to the early 1970s, the
Bretton Woods system made fixed currencies the norm; however, in 1971, the US
decided no longer to uphold the dollar exchange at 1/35th of an ounce of gold,
so that the currency was no longer fixed. After the 1973 Smithsonian Agreement,
most of the world's currencies followed suit. However, some countries, such as
most of the Gulf States, fixed their currency to the value of another currency,
which has been more recently associated with slower rates of growth. When a
currency floats, targets other than the exchange rate itself are used to
administer monetary policy (see open-market operations).
You can subscribe by e-mail to receive news updates and breaking stories.
0 comments for "Floating exchange rate"
Leave a reply