Managed Float Regime Essay

Cheap Custom Writing Service

The  current   worldwide  financial  environment  is called  a  managed   (or  dirty)  float  regime.  With national and regional economies increasingly intertwined, currencies  are almost  universally managed by central authorities: While exchange rates fluctuate daily, central banks or other institutions  buy and sell currencies in order to influence their value. This intervention works, in part, to slow down the damage that can be done by economic crises in the international economy.

The  managed  modifier  is used  to  highlight  the difference  between  this  circumstance  and  a “pure” floating exchange  rate, one in which those  fluctuations are governed by market  forces. The dirty float regime is one in which currencies are allowed to fluctuate—they are not pegged to fixed values as in fixed exchange rate systems—but intervention manipulates those fluctuations, like the paddle in a boat at sea, still bobbing with the waves rather than being affixed to a pylon, but (ideally) never capsizing or pulled too far in one direction or another.

The foreign exchange market, currency speculators, and arbitrageurs all amplify the size and frequency of currency fluctuations, and central bank intervention is meant  to counteract that.  More than  three  quarters  of the  activity on the  foreign exchange market is speculative, purchases  made with no intention  of “spending” that currency. This has been increasingly true  since  the  late  1990s, when  currency  speculation started to become more and more intense, more and more  aggressive. When  speculators  short  huge amounts of a country’s currency, the government can buy it back in order to stabilize prices and prevent a plummet—essentially  acting  as a force  to  countermand the already artificial nature and very real effects of currency speculation  and the treatment of money as a commodity good.

Compared  to private entities,  central  banks have tremendous foreign exchange reserves, and use various strategies to try to stabilize the market, influence inflation or interest rates, and constrict or enlarge the money supply. There is often a target  rate for their currency—not as fixed as a pegged rate, but a range to shoot for. Economist Milton Friedman has advocated applying the buy low/sell high strategy to the managed float: Central banks should buy up their currencies when they are exchanging at too low a rate, and sell them when the rate is too high, thus not only stabilizing the currency market but making a profit. To date, central banks’ activities have been more reactive than this, and so there is too little real-world data to evaluate the effectiveness of Friedman’s strategy.

Typically, intervention occurs  not  with every jot and jostle of the  market,  but  a few times a year in order to right the course. It is not always enough, but the severity of currency-related crises like the Asian financial crisis of the late 1990s is enough to demonstrate the need for action of some kind.


  1. Alan Greenspan, “The Roots of the Mortgage Crisis: Bubbles Cannot  Be Safely Defused by Monetary  Policy Before the  Speculative  Fever Breaks on  its Own,” Wall  Street Journal (December  12, 2007);
  2. William Greider, One World, Ready or Not (Penguin Press, 1997);
  3. Peter McKay, “Scammers  Operating  on  Periphery  of CFTC’s Domain Lure Little Guy With Fantastic Promises of Profits,” Wall Street Journal (July 26, 2005);
  4. Gregory J. Millman, Around the World  on a Trillion  Dollars a Day (Bantam Press, 1995);
  5. John J. Murphy, Technical Analysis of the Financial Markets (New York Institute of Finance, 1999);
  6. Brian J. Stark, Special Situation Investing: Hedging, Arbitrage, and Liquidation (Dow-Jones Publishers, 1983).

This example Managed Float Regime Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.

See also:


Always on-time


100% Confidentiality

Special offer!