Managed floating exchange rates

Governments normally engage in managed floating if not part of a fixed exchange rate system. Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - although this depends on whether the dealers in the foreign exchange markets regard a given fixed exchange rate as appropriate and credible.

Advantages of floating exchange rates

Fluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it gives the government / monetary authorities flexibility in determining interest rates.