Fixed Exchange Rate Measured Against Floating Exchange Rate
Synopsis
Making the right choice between the two options will dramatically dictate the survival of the currency stability and the trading platforms tagged to the movements caused by the said currencies. Therefore most governing powers are constantly exploring the suitability of the adoption of either of these two fairly opposing styles of currency rates.
Fixed and Floating
The smaller and more open the particular country’s economy, the more apparent choice would be that of the fixed exchange rate.
This is mainly dictated to by the fact that a lot of the stability issues for trading are connected in some way to the dependency on exports and imports.
Here the best regime choice would be based on the ideally stabilizers for the macroeconomic performance that will help to minimize the fluctuation on output, consumption and domestic pricing levels or other variables. However in most countries the usage of both styles is incorporated in varying degrees of flexibility.
The usage of the fixed exchange rate would be preferable if the country’s economy is faced with challenges that are mostly monetarily connected.
The flexible rate is preferable if the fluctuations apparent condition is volatile and is usually caused by other issues such as changes in the demands for the domestic goods, exports and imports.
There are some quarters that are of the opinion that having a fixed regime where the adoption of the pegged exchange rate is in place would ensure the inflation rates are kept low or at the very least controllable.
However this is not a complete ideal situation to be in, particularly if there is a need to increase borrowing as the interest rates can pressure the exchange rate pegged due to the fixed regime.
A floating rate however provider room to maneuver around a lot of these problems. However it also contributes in some ways to the rise in inflation but for the governing body this constitutes the possibility of increasing the tax revenues.