Floating exchange rate is made to point to the official exchange rate that central bank of one country does not stipulate domestic money and other country money, allow exchange rate to decide spontaneously by foreign exchange market.When the supply of foreign currency exceeds demand, the foreign currency depreciates, the local currency appreciates and the foreign exchange rate falls.Instead, foreign exchange rates rose.The local monetary authorities conduct appropriate intervention in the foreign exchange market to prevent excessive fluctuations in the exchange rate of the local currency so as to maintain the stability and development of the domestic economy.
Floating exchange rate system of formal adoption and universal implementation, is the late 1970s dollar crisis further intensified after the beginning.Floating exchange rate system according to whether the country intervenes in the foreign exchange market, can be divided into free floating (called “clean floating” again) and managed floating (called “dirty floating” again).
The main advantage of floating exchange rate system is to prevent the impact of international hot capital and avoid the outbreak of currency crisis.It is conducive to the growth of international trade and the development of production;It is conducive to promoting capital flow and so on.The disadvantage is that it often causes fluctuations in the foreign exchange market, which is not conducive to long-term international trade and investment.Detrimental to the stability of the financial market;The IMF’s supervision over exchange rates is not effective, and the imbalance of international payments remains unsolved.Worse for developing countries.
Fixed exchange rate refers to the exchange rate of one country’s currency with another country’s currency which is basically fixed.
From the early 19th century to the 1930s under the gold standard, and from the end of the Second World War to the early 1970s, the international monetary system centered on the US dollar, all implemented the fixed exchange rate system.
Fixed exchange rates are not completely fixed, but fluctuate around a relatively fixed range of parity.For example, in the dollar-centered fixed exchange rate system after World War II, the official parity of the currencies of imf member countries against the DOLLAR was the parity, and the currency exchange rate of each member country could only fluctuate 1% above or below the parity, and the central bank intervened.