1. Overview of the floating exchange rate system - The meaning of the floating exchange rate system 1. Concept: The monetary authority of a country no longer stipulates the price comparison between its own currency and foreign currencies and the range of exchange rate fluctuations, nor does the monetary authority assume the obligation to maintain the limits of exchange rate fluctuations, but allows the exchange rate to fluctuate as it pleases.

An exchange rate system in which supply and demand in the foreign exchange market fluctuate freely.

There are very few or almost no countries that completely allow market supply and demand to form exchange rates spontaneously without taking any intervention measures.

Governments of various countries often intervene in the foreign exchange market to varying degrees, either explicitly or covertly, based on their own specific circumstances.

⑴Since the collapse of the US dollar-centered fixed exchange rate system, major Western countries have generally implemented floating exchange rate systems in 1973.

But the floating exchange rate system is not a new exchange rate system that only appeared after 1973.

Before the United States officially implemented the gold standard in 1879, it implemented a floating exchange rate system for a short period of time.

After countries generally implemented the gold standard, the exchange rates of some silver standard countries still fluctuated frequently.

For example, India had been on the silver standard until 1893, and the exchange rate between the Indian rupee and the currencies of countries on the gold standard often fluctuated with changes in the gold-silver ratio.

The currency shield of the Austro-Hungarian Empire was also in a floating state for a time before the gold standard act was officially passed in 1891; even after 1891, there was still a short floating period.

The Russian ruble also floated before the gold standard was implemented in 1897.

From March 1919 to 1926 (except 1924), France implemented a completely uncontrolled floating exchange rate system for the franc.

During the Great Crisis of the 1930s, Britain tried a floating exchange rate system at the end of 1932.

The United States also implemented a floating exchange rate system from April 1933 to January 1934.

Even during the period of fixed exchange rate system centered on the US dollar, many countries still implemented floating exchange rate systems at some point in the period.

Canada implemented a floating exchange rate in September 1950 and returned to a fixed exchange rate until the end of May 1962. However, it implemented a floating exchange rate again at the end of May 1970.

In May 1971, the Federal Republic of Germany and the Netherlands implemented a floating exchange rate system.

After the U.S. government stopped converting the U.S. dollar into gold in August 1971, most Western countries implemented floating exchange rates. It was not until the "Washington Agreement" in December 1971 that fixed exchange rates were restored.

In early 1973, a new U.S. dollar crisis broke out. Major financial markets sold U.S. dollars in large quantities and snapped up Marks and Japanese yen. Gold prices rose and the foreign exchange market was closed.

On February 12 of the same year, the U.S. government again devalued the U.S. dollar by 10%, and the official price of gold increased from $38 to $42.23 per ounce.

After the second devaluation of the US dollar, Western countries generally implemented floating exchange rate systems.

January 1976.

The International Monetary Fund officially recognizes the floating exchange rate system.

In April 1978, the IMF Board of Governors passed the "Regulations on the Second Amendment to the Agreement", officially abolishing the US dollar-centered international monetary system.

At this point, the floating exchange rate system has gained legal status around the world.

2. Types of floating exchange rate systems - divided according to whether the government intervenes or not 1.

Free floating or clean floating: refers to the exchange rate being completely determined by the supply and demand conditions in the foreign exchange market, free to rise and fall, and freely adjusted without government intervention.

2.

Managed floating or dirty floating: refers to a country's monetary authorities, in order to prevent the foreign exchange rate of the country's currency from fluctuating too much, or to make the exchange rate change in a direction conducive to the development of the country's economy, through various means, either openly or covertly, on the foreign exchange market.

Intervene.

2. According to the degree of floating or floating method, it is divided into 1. Peg type or inelastic type.

The domestic currency is linked to a certain foreign currency or mixed currency unit at a fixed exchange rate, and the exchange rate of the domestic currency against other foreign currencies fluctuates with the fluctuation of the exchange rate between the pegged currency and other foreign currencies.

⑴Peg to a certain currency: Due to various reasons such as history and geography, some countries’ foreign trade and financial transactions are mainly concentrated in a certain industrialized country, or they mainly use a certain foreign currency.

In order to ensure the stable development of this kind of trade and financial relations and avoid the adverse effects of frequent exchange rate changes between each other, these countries usually peg their currencies to the currencies of the industrialized countries.

For example, the currencies of some American countries are pegged to the US dollar; the currencies of some former French colonial countries are pegged to the French franc.

As of December 31, 1994, there were 23 countries pegged to the US dollar, 14 countries pegged to the French franc, and 9 countries pegged to other single currencies.

⑵Peg to a “basket” (also called a “basket”) of currencies.

A currency basket is usually composed of several major world currencies or the currency of the country with the closest ties to its own economy.

The Special Drawing Rights is one of the most famous basket currencies. It consists of five currencies, including the U.S. dollar, Japanese yen, pound sterling, mark and French franc, in different proportions. Its price changes daily with the exchange rates of these five currencies.

All adjustments are made and announced by the International Monetary Fund on a daily basis.

The currency composition of other baskets of currencies is freely selected and adjusted by the countries that implement the peg policy.

This kind of floating has two characteristics: first, it maintains value; second, the fluctuation range is small and the exchange rate trend is stable.