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Floating exchange rate refers to the value of foreign currency that allows a country's currency to float freely according to the supply and demand situation in the foreign exchange market under the paper currency system, and the fluctuation range of exchange rate is not fixed. The current international exchange rate system is a floating exchange rate system.
According to the exchange rate that the market supply and demand freely rise and fall, the monetary authorities do not interfere. Under the floating exchange rate, gold parity has lost its practical significance, and the official exchange rate only plays a certain reference role.
As far as the floating form is concerned, if the government does not intervene in exchange rate fluctuations and completely lets the relationship between supply and demand determine the exchange rate, it is called free floating or clean floating. However, in order to maintain the stability of exchange rate, or for some political and economic purposes, governments all take more or less intervention measures against exchange rate fluctuations.
This floating exchange rate is called managed floating or dirty floating internationally. 1973 after the collapse of the fixed exchange rate system, western countries generally implemented a floating exchange rate system.
Floating exchange rate means that the exchange rate between one country's currency and other countries' currencies has no fluctuation range, but is determined by the supply and demand relationship in the foreign exchange market. 1971August 15, the United States implemented a new economic policy and allowed the exchange rate of the US dollar to float freely.
By 1973, countries generally implemented floating exchange rate system. Since then, the foreign exchange market has developed with the constant fluctuation of various exchange rates.
According to whether the government intervenes or not, floating exchange rate can be divided into free floating exchange rate and managed floating exchange rate. In real life, the government does not take any intervention measures on the exchange rate of its own currency, and there are almost no countries that completely adopt a free floating exchange rate.
Because the exchange rate has a great influence on a country's balance of payments and economic balance, most governments control the trend of the exchange rate by adjusting interest rates, buying and selling foreign exchange in the foreign exchange market and controlling capital flows.