Floating exchange rate

In <a href="/facts/Macroeconomics/4dcQAdCr">macroeconomics</a> and <a href="/facts/Economic_policy/YR2FJ8L4">economic policy</a>, a floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of <a href="/facts/Exchange_rate_regime/fjeJhaMa">exchange rate regime</a> in which a <a href="/facts/Currency/g5GPGfTe">currency</a>'s value is allowed to fluctuate in response to <a href="/facts/Foreign_exchange_market/NHnHPMhE">foreign exchange market</a> events. A currency that uses a floating exchange rate is known as a floating currency. In contrast, a <a href="/facts/Fixed_currency/uWJj4lmH">fixed currency</a> is one where its value is specified in terms of material <a href="/facts/Goods/AtK6gQh2">goods</a>, another currency, or a <a href="/facts/Currency_basket/dq4YLJ5I">set of currencies</a>. The idea of a fixed currency is to reduce currency fluctuations.
In the modern world, most of the world's currencies are floating, and include the most widely traded currencies: the <a href="/facts/United_States_dollar/naEEDUhC">United States dollar</a>, the <a href="/facts/Euro/NWG2nlCx">euro</a>, the <a href="/facts/Japanese_yen/Txz0CFhd">Japanese yen</a>, the <a href="/facts/Pound_sterling/cGgjUJwv">pound sterling</a>, the <a href="/facts/Australian_dollar/YkLFr4vV">Australian dollar</a>, and the <a href="/facts/Swiss_franc/W7XSc3UQ">Swiss franc</a>. However, even with floating currencies, <a href="/facts/Central_bank/5j5xg3s2">central banks</a> sometimes participate in markets to attempt to influence the value of floating exchange rates. The <a href="/facts/Canadian_dollar/NMSsTyIE">Canadian dollar</a> has not seen interference by the <a href="/facts/Bank_of_Canada/jVY3BzG9">Canadian national bank</a> with its price since September 1998. The US dollar also sees very little change of its <a href="/facts/Foreign_reserves/6fDTWn7l">foreign reserves</a>.
From 1946 to the early 1970s, the <a href="/facts/Bretton_Woods_system/cQWyMgkC">Bretton Woods system</a> made fixed currencies the norm; however, during 1971, the US government decided to discontinue maintaining the dollar exchange at 1/35 of an ounce of gold and so its currency was no longer fixed. After the end of the <a href="/facts/Smithsonian_Agreement/21265nUt">Smithsonian Agreement</a> in 1973, most of the world's currencies followed suit. However, some countries, such as most of the <a href="/facts/Arab_states_of_the_Persian_Gulf/tpxkypCs">Arab states of the Persian Gulf</a> region, fixed their currency to the value of another currency, which has been associated more recently with slower rates of growth. When a currency floats, quantities other than the exchange rate itself are used to administer <a href="/facts/Monetary_policy/LXehzvG0">monetary policy</a> (see <a href="/facts/Open-market_operation/MqgUwjwU">open-market operations</a>).

Floating exchange rate open-in-new

Floating exchange rate