Managed Float
Managed float is a type of exchange rate system in which a currency’s value is allowed to fluctuate according to the market forces of supply and demand. The exchange rate is managed by a central bank or other monetary authority, which intervenes in the market to ensure that the currency’s value remains within a predetermined range. This type of system is also known as a “dirty float” or “managed floating exchange rate”.
History of Managed Float
The managed float system was first introduced in the early 1970s, when the Bretton Woods system of fixed exchange rates collapsed. Under the Bretton Woods system, countries had agreed to maintain fixed exchange rates between their currencies, with the U.S. dollar as the anchor currency. When the system collapsed, countries had to find a new way to manage their exchange rates. The managed float system was seen as a way to maintain some control over exchange rates while still allowing them to fluctuate according to market forces.
Since then, the managed float system has become the most common type of exchange rate system in the world. Most countries have adopted some form of managed float, although the exact details of how the system is managed vary from country to country. In some cases, the central bank may intervene in the market to buy or sell currency in order to maintain a desired exchange rate. In other cases, the central bank may simply monitor the market and intervene only when necessary.
Comparison Table
| System | Exchange Rate | Central Bank Intervention |
|---|---|---|
| Fixed Exchange Rate | Fixed | Yes |
| Floating Exchange Rate | Fluctuates | No |
| Managed Float | Fluctuates | Yes |
Summary
Managed float is a type of exchange rate system in which a currency’s value is allowed to fluctuate according to the market forces of supply and demand, but is managed by a central bank or other monetary authority. This type of system is seen as a way to maintain some control over exchange rates while still allowing them to fluctuate according to market forces. For more information about managed float, visit the websites of the International Monetary Fund, the World Bank, and the Bank for International Settlements.
See Also
- Fixed Exchange Rate
- Floating Exchange Rate
- Currency Peg
- Currency Swap
- Currency Board
- Exchange Rate Mechanism
- Currency Intervention
- Currency War
- Devaluation
- Re-evaluation
