Advantages Of A Countrys Currency Float On The Exchange...

In monetary policy, exchange rates serve either as a target, an instrument or an indicator depending whether it is fixed or floating. Conversely, the focus of this essay is on floating exchange rates, the countries that applied it in the 1970s and its chief advantages. The paper argues that the chief advantages to letting a country’s currency float on the exchange rates are threefold. First, it is principally determined by market forces thus underlying this fact is the efficient allocation of resources. Secondly, countries with floating exchange rates have independent and autonomous monetary policy. Lastly, the central bank has no need to intervene; capital mobility is possible. These advantages will be analysed using the realism and the analytical liberalism approaches. Specifically, the paper examines countries from the 1970s that followed floating exchange rates. To do so, the assumptions of the two approaches will be surveyed. A historical account of G-10 countries that moved to floating exchange rates later in the 1970s will be examined. Realism believes that power relationships matter most for states. In other words, it is an international relations paradigm that relies heavily on the importance of power and the anarchic nature of the international system. In analysing the floating exchange rate system, realists look for the role of the single hegemonic state or the concentration of power to one state. This is a system level theory that looks for what the hegemonShow MoreRelatedThe Impossible Trinity836 Words   |  4 PagesINTERNATIONAL FINANCE â€Å"The impossible Trinity† Has the â€Å"Managed Float† approach worked for Trinidad and Tobago? The Impossible Trinity: Managed Float in Trinidad and Tobago International economics holds the hypothesis that it’s impossible for a country to simultaneously execute: 1. A fixed exchange rate 2. Free capital movement and, 3. 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