Floating Exchange Rate
A floating 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. This means that the currency’s value is determined by market forces, such as supply and demand, and is free from government intervention. This type of exchange rate system is also known as a flexible exchange rate system.
History of Floating Exchange Rates
The concept of a floating exchange rate was first introduced in the early 1970s, when the Bretton Woods system of fixed exchange rates was abandoned. This system had been in place since the end of World War II and had been used to maintain stability in the global economy. However, the system was no longer able to keep up with the changing economic conditions of the time, and so the decision was made to move to a floating exchange rate system.
Since then, the majority of countries have adopted a floating exchange rate system, although some countries still maintain a fixed exchange rate system. The most notable example of a country with a fixed exchange rate is China, which has maintained a fixed exchange rate since 1994.
Table of Comparisons
| Type of Exchange Rate | Fluctuation | Government Intervention |
|---|---|---|
| Floating Exchange Rate | Allowed | None |
| Fixed Exchange Rate | Not Allowed | Yes |
Summary
A floating 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. This means that the currency’s value is determined by market forces, such as supply and demand, and is free from government intervention. This type of exchange rate system is also known as a flexible exchange rate system and is the most common type of exchange rate system used today. For more information on floating exchange rates, you can visit websites such as Investopedia, The Balance, and the International Monetary Fund.
See Also
- Fixed Exchange Rate
- Currency Exchange Rate
- Exchange Rate Regime
- Foreign Exchange Market
- Currency Appreciation
- Currency Depreciation
- Currency Peg
- Currency Swap
- Currency Intervention
- Currency Crisis
