What does it mean to float the currency?
July 25, 2016 in the media center, reports the comments on why the currency was floated mean? Closed
Floating currency is to make this exchange currency rate editor in full, so that the government or the central bank does not intervene in determined directly. But it is automatically excreted in the currency market by supply and demand mechanism that allows for the identification of the national currency exchange rate against foreign currencies.
Floating exchange rates fluctuate constantly change with each witnessing supply and demand for foreign currency, so it can be changed several times per day.
Forms of flotation
Either be floating or purely be directed:
- Pure flotation: are left to determine the exchange rate to market forces and the mechanism of supply and demand in full, and the state refrain from any direct or indirect intervention.
- Flotation prompt: is left to determine the exchange rate to market forces and the mechanism of supply and demand, but the state intervenes (via the central bank) as needed in order to guide the exchange rates in certain directions by influencing the size of the offer or demand for foreign currencies.
Supporters of flotation
For as long as theorists monetary school defended in economics (Milton Friedman model) for floating currencies, claiming that the liberalization of exchange rates will make it reflect the economic fundamentals of the various countries (growth, trade balance, inflation, interest rates), and will lead it thus to restore the balance of relations and business accounts of current transactions continuously and automatically.
And they see these economists, like the neoclassical trend in the economy, that the liberation of all prices -osar goods and services, interest rates, labor prices (wages), foreign exchange rates (exchange rates) - and leave the identified markets without any interference or direction from the state, always ensures access to state of balance.
This stems from the belief in blind efficient markets, despite the fact that economic reality has proved more than once that the markets in the absence of oversight and control lead to disaster (subprime mortgage crisis in the United States model).