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What kind of an Exchange-Rate Regime can benefit the Market?

  • July 2014
  • Posted By Ninoslav

Some words which are generally associated with Foreign Exchange are “unpredictable”, “volatile” etc.  Rates here keep swinging every time here. While some currencies may fare well here, others may not be so fortunate. So, every nation needs to pay attention and implement some steps in their domestic structure to maintain a strong position for its money. And this procedure to keep a currency alive and kicking is known as Exchange-Rate Regime.

Even though such measures can be of varied nature, their objective is same – to reduce volatility in rates of exchange. So, what kinds of regimes are implemented by countries? And to what extent have these measures been successful?

What kind of regimes are there?
Till date, there have been mainly three types of procedures which countries all over the world adopt to keep in check exchange rate of currencies. These are – fixed, flexible and intermediate. In addition, there are sub-classes to the above mentioned classes too. Keeping with its monetary policy and financial condition, a nation can adopt any one of the above policies.

For example, there is the floating exchange rate regime, where governments and authorities do not interfere in the activities of the Forex Market and rates get dictated by the market scenario only. Alternatively, there is also the option of choosing a pegged float. Here the central bank of a nation, which handles production and circulation of its currency, takes decisions regarding controlling of currency exchange.

Apart from these above mentioned examples, there is a lot to study about Exchange-Rate Regime. That will help in understanding the economics of a nation better. But before that, it would wise in studying the source of all of these. That can be achieved by reading about “What importance does currency hold for a country’s and world economy”.


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