Please enable JavaScript.

Coggle requires JavaScript to display documents.

Exchange Rate Systems - Coggle Diagram

- - - - could argue that there is too much focus on inflation rather than unemployment and growth
- - - - reduces the need to hold large amounts of currency reserves
      - freedom to set monetary policy to meet domestic objectives
      - may help to prevent imported inflation
      - insulation for an economy after external shock for export dependent countries
      - partial automatic correction for CA deficit
      - less risk of currency being under/over valued
    - - no guarantee of stability
      - volatility may repel FDI
      - may not correct BoP deficit
  - - - certainty of currency gives confidence for inward investment
      - reduced costs of currency hedging
      - stability helps control inflation
      - lead to lower borrowing costs
      - imposes responsibility on gov macro policies
      - less speculation if fixed rate is credible
    - - reduced freedom for macro objectives
      - many countries do not have sufficient foregin currency to maintain fixed rate
      - difficult to use competitive devaluation
      - devaluation could cause cost push inflation