Key Diagrams - Managed Floating Exchange Rates
- A-Level, IB
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 30 May 2022
In this revision video we look at how supply and demand diagrams can be used to analyse a managed floating currency.
A managed floating exchange rate is an exchange rate system that allows a nation's central bank to intervene regularly in foreign exchange markets to change the direction of the currency's float and/or reduce the amount of currency volatility.
This exchange rate system is also known as a “dirty float”.
IMF Survey of Currency Systems (2021)
Countries with a managed-floating exchange rate:
- South Korea
- South Africa
- New Zealand
Key central bank tools for managing a floating exchange rate are:
- Changes in monetary policy interest rates– designed to influence “hot money” flows
- Direct intervention in the currency marketa)Buying domestic currency for an appreciationb)Selling domestic currency for a depreciation