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Fixed vs. Floating exchange rates - Essay Example

Over the years, fixed exchange rates have promoted international trade. Moreover, the key benefit of fixed exchange rate regime to a country’s economy is assurance; as people in different countries are aware the everyday value of their country’s currency. Besides, fixed exchange rates also compel monetary control by preventing governments from inflationary monetary practices such as printing more money. On the contrary, floating exchange rates raise exchange rate uncertainty, therefore, hampering international trade. Moreover, floating exchange rates contribute to inflationary anxieties; due to lack of the benefits of the fixed exchange rate regime, which impedes domestic policies which eat into net exports of a country. Consequently, inflation is ultimately a result of macroeconomic policies implemented by national governments as well as their central banks. Through floating exchange rates, folks are less likely to take part in international trade because of uncertainty of how many. Certainty is an essential part of international trade; floating exchange rates hamper international trade. Additionally, proponents of floating exchange rates, uphold that it’s better for a nation to assume policies that rally its domestic economic goals than to forego domestic economic goals to keep an exchange rate. Furthermore, there’s a great possibility of fixed exchange rate diverging notably from the equilibrium exchange rate; hence generating a constant balance of trade predicaments.

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The goal of this essay example is to describe the background of the two types of exchange rates throughout the history: fixed and floating. Lastly, the paper will discuss how the choice of exchange rate system can impact the country's economy…
Fixed vs. Floating exchange rates
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