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In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro.
Currency substitution is the use of a foreign currency in parallel to or instead of a domestic currency.
The Hong Kong dollar is the official currency of the Hong Kong Special Administrative Region. It is subdivided into 100 cents or 1000 mils. The Hong Kong Monetary Authority is the monetary authority of Hong Kong and the Hong Kong dollar.
The Bretton Woods system of monetary management established the rules for commercial relations among the United States, Canada, Western European countries, and Australia as well as 44 other countries after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates, with the dollar convertible to gold bullion for foreign governments and central banks at US$35 per troy ounce of fine gold. It also envisioned greater cooperation among countries in order to prevent future competitive devaluations, and thus established the International Monetary Fund (IMF) to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits.
A managed float regime, also known as a dirty float, is a type of exchange rate regime where a currency's value is allowed to fluctuate in response to foreign-exchange market mechanisms, but the central bank or monetary authority of the country intervenes occasionally to stabilize or steer the currency's value in a particular direction. This is in contrast to a pure float where the value is entirely determined by market forces, and a fixed exchange rate where the value is pegged to another currency or a basket of currencies.
In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national currency in relation to a foreign reference currency or currency basket. The opposite of devaluation, a change in the exchange rate making the domestic currency more expensive, is called a revaluation. A monetary authority maintains a fixed value of its currency by being ready to buy or sell foreign currency with the domestic currency at a stated rate; a devaluation is an indication that the monetary authority will buy and sell foreign currency at a lower rate.
The Mexican peso crisis was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by capital flight.
Foreign exchange reserves are cash and other reserve assets such as gold and silver held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets. Reserves are held in one or more reserve currencies, nowadays mostly the United States dollar and to a lesser extent the euro.
The impossible trinity is a concept in international economics and international political economy which states that it is impossible to have all three of the following at the same time:
An exchange rate regime is a way a monetary authority of a country or currency union manages the currency about other currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors, such as economic scale and openness, inflation rate, the elasticity of the labor market, financial market development, and capital mobility.
Uruguayan peso has been a name of the Uruguayan currency since Uruguay's settlement by Europeans. The present currency, the peso uruguayo was adopted in 1993 and is subdivided into 100 centésimos, although centésimos are not currently in use.
The Convertibility plan was a plan by the Argentine Currency Board that pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. The peso was only pegged to the dollar until 2002.
A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. A currency crisis raises the probability of a banking crisis or a default crisis. During a currency crisis the value of foreign denominated debt will rise drastically relative to the declining value of the home currency. Generally doubt exists as to whether a country's central bank has sufficient foreign exchange reserves to maintain the country's fixed exchange rate, if it has any.
José Alfredo Martínez de Hoz was an Argentine lawyer, businessman, and economist. He was the Minister of Economy of Argentina during the country's last military dictatorship (1976—1983), and shaped the economic policy of the dictatorship until its end.
Adolfo César Diz was an Argentine economist who was President of the Central Bank of Argentina from 1976 until 1981.
A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another measure of value, such as gold.
In macroeconomics, a flexible exchange-rate system is a monetary system that allows the exchange rate to be determined by supply and demand.
A currency basket is a portfolio of selected currencies with different weightings. A currency basket is commonly used by investors to minimize the risk of currency fluctuations and also governments when setting the market value of a country's currency.
The United States dollar was established as the world's foremost reserve currency by the Bretton Woods Agreement of 1944. It claimed this status from sterling after the devastation of two world wars and the massive spending of the United Kingdom's gold reserves. Despite all links to gold being severed in 1971, the dollar continues to be the world's foremost reserve currency. Furthermore, the Bretton Woods Agreement also set up the global post-war monetary system by setting up rules, institutions and procedures for conducting international trade and accessing the global capital markets using the US dollar.
Fear of floating refers to situations where a country prefers a fixed exchange rate to a floating exchange rate regime. This is more relevant in emerging economies, especially when they suffered from financial crisis in the last two decades. In foreign exchange markets of the emerging market economies, there is evidence showing that countries who claim they are floating their currency, are actually reluctant to let the nominal exchange rate fluctuate in response to macroeconomic shocks. In the literature, this is first convincingly documented by Calvo and Reinhart with "fear of floating" as the title of one of their papers in 2000. Since then, this widespread phenomenon of reluctance to adjust exchange rates in emerging markets is usually called "fear of floating". Most of the studies on "fear of floating" are closely related to literature on costs and benefits of different exchange rate regimes.
References
- 1 2 3 Daniel R. Kane (1988). Principles of International Finance. Croom Helm. p. 116. ISBN 9780709931348.
- ↑ "Crawling Peg". Investopedia. Retrieved 2016-01-13.
- ↑ Dat, HoangDuc. "The fifth edition of Maurice D".
{{cite journal}}: Cite journal requires|journal=(help) - ↑ E. Ray Canterbery (2011). The Global Great Recession. World Scientific. ISBN 978-981-4322-77-5.
- ↑ Gang Yi, The People's Bank of China, "Exchange Rate Arrangement: Flexible and Fixed Exchange Rate Debate Revisited, IMF, April 16–17, 2013, pp. 5-6.
- 1 2 Annual Report on Exchange Arrangements and Exchange Restrictions 2014 (PDF). Washington, D.C.: International Monetary Fund. October 2014. p. 6. ISBN 978-1-49830-409-2.
- ↑ Rogers, Tim (May 13, 2014). "Nicaragua seeks to de-dollarize economy". The Nicaragua Dispatch. Archived from the original on February 10, 2017. Retrieved January 13, 2016.
- ↑ "Current Exchange Rate Framework". Bank of Botswana. Archived from the original on 2 December 2023. Retrieved 13 March 2024.
- ↑ U.S. Department of the Treasury (May 2019). "Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States: May 2019" (PDF). U.S. Department of the Treasury. p. 36. Archived from the original (PDF) on 2 November 2023. Retrieved 13 March 2024.
- ↑ Barnes, Mark (4 November 2022). "Explained: Implications of the Latest Fed Rate Hike on the Vietnamese Dong". Vietnam Briefing. Archived from the original on 1 April 2023. Retrieved 13 March 2024.
- ↑ "La tablita cambiaria, la medida más recordada de Alfredo Martínez de Hoz". La Nación. 16 March 2013.
- ↑ "Inflación, emisión cero y bandas de no intervención: Las principales frases de Sandleris". La Nación. 26 September 2018.
- ↑ "Argentina to Target 2% Monthly Devaluation of Peso". Bloomberg. 12 December 2023.
- ↑ Devnath, Arun (8 May 2024). "Bangladesh Introduces Crawling Peg for Taka as Rates Raised". Bloomberg. Archived from the original on 9 May 2024. Retrieved 9 May 2024– via Financial Post.