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Saturday, 11 Aug 2018

EGP Free-Float is Real or Artificial?

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The collapse of the Bretton Woods system in 1970s brought major changes and broad variety of choices for exchange rate regimes, each country had been free to choose any form of exchange arrangement, varying from pure free-floating to intermediate regimes, hard pegs, crawling pegs, currency unions, and flexible exchange rate. The choice of the convenient regime depends on each country’s specific characteristics, political situation and economic
condition. The determination of an exchange rate regime is a key factor for countries’ macroeconomic stability. Both fixed and flexible regimes have their pros and cons; whereas, fixed regime reduces transaction cost, makes investment and trade of a less risk and lowers speculation, while flexible regime can adjust to external shocks,
restores equilibrium to the balance of payments and government does not need to hold large reserves of foreign currency, instruments of financial markets have to be accessible to hedge the risks associated with exchange rate
fluctuation.

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