Exchange rate is the price of a country's monetary unit, expressed in monetary units of other countries or in international monetary units (euro, SDR).
The exchange rate is one of the elements of the monetary system, which is used to:
Exchange of currencies between countries when trading in goods and services. Exporters exchange the received currency for the currency of their country in accordance with the laws, and importers exchange the currency of their country for a foreign one to pay for goods purchased abroad;
comparison of prices on national and world markets;
revaluation of accounts of banks and companies in foreign currency.
For participants in the exchange, the exchange rate is the ratio of converting currencies from one currency to another. But the value basis of the exchange rate is the purchasing power of currencies, which shows the average price levels of goods, services and investments of a country. The exchange rate enables buyers and sellers to compare prices in their own country with prices for similar goods and services in other countries. Such a comparison makes it possible to assess the profitability of the development of a particular production.
The following factors influence the exchange rate:
the size and rate of inflation;
the difference in interest rates of different countries;
balance of payments of the country;
the state of the foreign exchange market and speculative operations on it;
the popularity of a certain currency in the world market;
the degree of confidence in the currency;
speed of international payments.
For currency transactions, currency exchange and quotation are required - determining the exchange rate.
There are several types of exchange rates:
fixed- the legally established ratio between the two currencies;
floating- is installed in the course of trading on the currency exchange (in Russia - the Moscow Interbank Currency Exchange, operating under the control of the Central Bank). According to the results of trading on Tuesdays and Thursdays, the Central Bank of the Russian Federation sets the exchange rate of the US dollar against the ruble, the so-called fixing;
cross course- the ratio between the two currencies, resulting from their rate in relation to the third currency;
current (spot rate)- the rate of the cash transaction. This type of exchange rate is used for settlements within two days;
forward- it is used for settlements under foreign exchange contracts some time after their conclusion;
fundamental equilibrium- in which the state can maintain external and internal macroeconomic equilibrium.
There are such types of exchange rates as the seller's rate and the buyer's rate. Banks sell foreign currency at a higher price (seller's rate) than they buy (buyer's rate). The difference is used to cover expenses and to insure foreign exchange risk.
All world currencies are divided into:
Fixed rate currencies (to one currency);
currencies with limited flexibility (within the framework of a joint policy, in relation to one currency);
floating rate currencies.
Belonging to a particular group depends on the change in the type of exchange rate.
Currency convertibility
Convertibility or reversibility of a national currency is the ability to legally exchange it for foreign currencies.
According to the degree of convertibility, the following currencies are distinguished: hard currency (freely convertible, partially convertible, non-convertible (closed), clearing.
Hard currency is a currency freely and unrestrictedly exchanged for other foreign currencies. Its actions apply to current operations and to operations on external lending. Hard currency is called a reserve currency, because in such a currency, central banks of other countries accumulate and store reserves of funds for international settlements.
Partially convertible currency is the national currency of countries in which currency restrictions are applied for residents and for certain types of exchange transactions. Typically, this currency is only exchanged for certain foreign currencies. Partial reversibility is non-proliferation to some branches of foreign economic activity (free exchange of the national currency for foreign monetary values is allowed only in relation to current operations and is not allowed in transactions involving foreign investments and other international capital movements). The main reason for partial convertibility is the lack of foreign exchange, pressure from external debt.
Closed currency is a national currency that functions only within one country and is not exchanged for other foreign currencies. Closed currencies include currencies that are subject to administrative restrictions on export and import, sale, purchase and exchange, as well as various measures of currency regulation.
Clearing currencies are units of account. With their help, bank accounts are maintained and transactions are carried out between countries that have entered into agreements on the mutual offset of international claims and obligations. Clearing currencies function exclusively as counting currencies in the form of entries in bank accounts.
Exchange rate - the price of one currency, expressed in a certain amount of another. In the practice of international monetary relations, the following types of exchange rates are used:
Fixed - these are courses established by an agreement between countries and supported by measures of government regulation;
Floating - these are courses that are formed under the influence of supply and demand and are adjusted by the state.
World practice testifies to three main models for organizing the exchange of national currencies and setting exchange rates:
The first model is based on the fact that exchange is concentrated in government organizations and is carried out at exchange rates set by central banks (non-convertible currencies).
The second model is based on the fact that the state is eliminated from participation in the direct exchange of national currencies for foreign ones and transfers these operations to the foreign exchange market. The exchange rate is determined by market means, however, the state represented by the Central Bank through currency regulation affects the level of the exchange rate and the limits of its fluctuations (partially convertible currency).
The third model assumes that the state generally ceases to participate in foreign exchange operations, transferring all these operations to the foreign exchange market, which independently forms the exchange ratios of monetary units (FCC).
To express the exchange rate, the concept of a currency quote is used. Currency quotation - the rate determined by the participants in the foreign exchange market at any given time. Distinguish: direct quotation - the price of a unit of the national currency is expressed in a certain amount of foreign currency; indirect quotation - the price of the national currency is expressed in a certain amount of foreign currency. When quoting, banks set two rates: the buyer's rate (the rate at which the bank buys the currency) and the seller's rate (the rate at which the bank sells the currency). The difference between these rates is called margin and serves to cover the bank's expenses and make a profit.
Cross rate - the ratio between two currencies that results in relation to a third currency (usually the US dollar).
International relations are based on the use of national currencies. These include different means of circulation: coins, banknotes, payment documents, securities, precious metals, etc. Depending on the level of integration of the country into the world economy, currency can be circulated in different ways. Exchange of a national unit is a prerequisite for international trade.
Definition
Exchange rate - the value of a country's monetary unit, expressed in payment units of another state. It connects the economy with the outside world, allows international transactions.
The ability of citizens of the country and non-residents to freely buy and sell banknotes is called convertibility. Any restrictions on such operations by the Central Bank or the state turn the currency into partially tradable. Free conversion is possible only in an economically stable country. Legislative permission alone is not enough; trust in the monetary unit and a high assessment of the level of development of the state are also needed.
Conversion is based on currency parity. But in practice, the exchange rates of monetary units never coincide with it, since supply and demand are not equal. In the context of an active balance of payments, the foreign exchange rate in the domestic market is falling, while the national one is growing. The opposite situation takes place with passive balance. Therefore, in most countries, there is an official and a free exchange rate at the same time. According to the first, settlements of the Central Bank with international organizations are carried out, and according to the second, between individuals.
Quotation - fixing the national currency in foreign currency. They are of two types: direct (the price, for example, of a dollar on the domestic market) and reverse. If the value of one currency is expressed through the other two, then this is the cross rate. The need for it arises if the exchange of direct quotes between two monetary units is very small.
The demand for foreign exchange is determined by the interest of other countries in domestic goods. To pay for the purchase, foreign countries must conduct a currency exchange.
The proposal is determined by:
1) the demand of a given country for foreign goods;
2) interests in the financial assets of other states.
How the value of a currency is calculated
The price changes every day under the influence of various macroeconomic factors. The Central Bank of the Russian Federation publishes courses daily in special bulletins. These calculations are based on:
1. Quotes on the last trading day for US dollar - Russian ruble transactions.
2. The official exchange rate set by the IMF on the previous business day.
3. Prices for other currencies are calculated by the Bank of Russia on the basis of their quotes against the dollar in the international and exchange segments of the domestic market, as well as the levels set by the Central Banks of the respective countries.
Factors affecting the exchange rate
In the days of the gold standard, purchasing power parity was determined by the content of the precious metal in monetary units, and the price fluctuated within 1%, that is, the cost of transporting coins. In the conditions of paper circulation, it changes daily, so it became necessary to study the laws of its fluctuations. The price is formed under the influence of supply and demand.
A change in the exchange rate affects the state of foreign trade, is reflected in the result of the activities of organizations, the level of employment, etc. Therefore, government intervention in such relations is necessary. But its intensity depends on the goals and set of economic levers. Actions can be aimed both at reducing (devaluation) the value of the national monetary unit, and at increasing it (revaluation).
The exchange rate can change under the influence of the country's balance of payments - the ratio of received and paid amounts. The surplus indicates an increase in demand for the currency on the part of foreign borrowers, thus strengthening it. Passive is an increase in interest in foreign currency, a decrease in the national exchange rate.
Changing consumer tastes. An increase in demand for imported services will lead to a decrease in the price of the national currency. And the increased interest in domestic services will increase its value.
State policy in foreign trade. The exchange rate will increase if imports are restricted by the government. But the widespread use of such measures can have negative consequences, as the volume of international trade will be greatly reduced.
Changes in the value of buyers' income. With an increase in the number of temporarily available funds, the consumption of goods (imported and domestic) and the demand for foreign currency increases. On the market, this will be reflected in a depreciation.
Inflation. All other things being equal, this process is inversely proportional to the course. If prices in one country rise faster than in another, then imported goods will cost less than domestic ones. Accordingly, the value of the national currency will decline. The desire of people to maintain real incomes by buying foreign currency will only exacerbate the situation. But, since the supply of the monetary unit remains unchanged, inflation will lead to a depreciation. Therefore, it is common to calculate purchasing power parity (PPP). This is the real price of the ruble, expressed in the currency of another state. The calculation is carried out for similar goods. Example: the consumer basket in Russia is 7000 rubles, and in the USA - 100 dollars. The ratio of the rates will look like: 1 dollar = 70 rubles, or 1 rubles. = $ 0.01.
The value of real interest rates: the higher they are, the more attractive a given country is for investment. But, on the other hand, their growth causes a rise in the cost of credit. If entrepreneurs do not have enough own funds to finance their economic activities, then the borrowed capital with high rates will lead to an increase in prime cost, an increase in product prices and a decrease in the attractiveness of the national currency. That is, this factor can have a twofold effect on the dollar exchange rate.
State regulation of the economy: the use of foreign exchange reserves, trade, financial and monetary policy.
Other factors affecting the exchange rate:
1. Publication of important economic data in the media: inflation rates, balance of payments deficit, unemployment rate, discount rates, stock indices, stock prices, bonds, GNP, election race, etc.
2. Large transactions of commercial financial institutions.
3. Factors of the exchange rate, the impact of which cannot be predicted (we are talking about wars, revolutions and other cataclysms).
4. The Central Bank can directly influence the exchange rate by buying or supplying currency in large lots. This causes sharp fluctuations in the ratio. Regulation of interest rates and the volume of money supply does not have such a strong effect on the value of the ruble.
5. Insurance, hedge, pension and other funds invest in currencies, trying to avoid the risks of devaluation. Such transactions - especially with large amounts - significantly affect the country's exchange rate.
6. The cost of gold and oil.
Regulation of the exchange rate
Foreign exchange interventions are operations of the Central Bank for the purchase and sale of the country's currency. To increase the exchange rate, the central bank must sell foreign currencies, thus reducing the demand for them. And to lower it - perform the opposite operation.
Discount policy is a change in the discount rate that affects the price of a loan in the domestic market. With a passive balance of payments, its growth can serve as an incentive for capital inflows. By decreasing the rate, the Central Bank expects an outflow of funds, which will reduce the surplus and reduce the rate.
Protectionist measures
These include:
A blockade is a sanction in the form of unilateral restrictions by one state or a group of countries of another power, which will not allow the use of its banknotes;
Ban on free circulation of foreign currency;
Regulation of international transactions;
Movement of capital, gold, securities;
Repatriation of profits;
Concentration of foreign currency in the hands of the state.
Types of exchange rates
There are several classifications. By time:
1) spot - the exchange rate, which is kept for no more than 2 business days after the quotation is accepted;
2) forward - the future value of the national currency, expressed in foreign currency.
Types of exchange rates that are used to identify real movement trends:
1) nominal - the current quotation;
2) real - this is the recalculated value of the monetary unit, taking into account inflation;
3) nominal effective - the ratio of the national currency and the currencies of the partner countries;
4) real effective exchange rate - nominal, adjusted for price dynamics.
According to the degree of hardness:
1) fixed - a clear price ratio;
2) limited flexibility - can vary within certain limits;
3) floating - established on the basis of supply and demand.
There are also hybrid types: managed float, creeping fixation and currency corridor - these are the limits of price fluctuations that are set by the Central Bank. Its main feature is that the limiting ratios are strictly limited and enshrined in law. The currency corridor is introduced in the absence of free capital, due to a large deficit, internal and external debt.
Exchange rate regimes
“Currency” in translation means “cost”. Let's give an example. Even 100 years ago, the value of money was determined by the amount of gold reserves held by the state. But after World War II, most of the precious metal was concentrated in the United States. Then there was a transition to the gold and currency (Bratton Woods) system, according to which:
- the reserve currency is the US dollar;
- the treasury, if necessary, will exchange it for gold (35: 1);
- all national currencies in a certain ratio were "pegged" to the dollar, and through it - to the most expensive metal.
Then the monetary unit of the richest country in the world (USA) replaced gold in international settlements. But after the growth rates of production in Japan surpassed the American ones, the European Economic Community was formed (1954), which included France, Germany, Italy, Belgium, the Netherlands and Luxembourg. The competitiveness of US products has dropped sharply. Countries in which dollars were in large quantities began to present them to the Treasury in order to exchange them for gold. And after the reserves of the precious metal ran out, the United States devalued the currency. On 03/19/1973 a new system was introduced.
A fixed rate is established and maintained by the intervention of the Central Bank at a certain level. Let's look at the example of the ratio of pounds to the dollar. If the demand for the monetary unit of Great Britain grows, then its rate rises. The Central Bank's task is to clearly fix it at a certain level. To do this, the bank must buy up foreign currency. As a result of the increased demand for imported goods, the value of the pound in dollars decreases. The Central Bank should reduce the availability of the national currency by exchanging dollars for it.
With an increase in the exchange rate, foreign exchange reserves decrease. The demand for goods leads to an increase in exports, that is, an inflow of foreign currency. This causes a surplus in the balance of payments. In such a situation, the Central Bank should increase the supply of the national currency by buying up foreign currency. This will lead to the replenishment of the country's monetary reserves.
Due to the growth of imports, the exchange rate decreases, there is an outflow of capital from the country, the balance becomes negative, and a deficit arises. To finance it, it is necessary to reduce the supply of the national currency by buying it.
With a fixed exchange rate, the balance of payments looks like:
Current transactions (Xn) + Capital flows (CF) = Dynamics of changes in reserves (R).
A fixed exchange rate accompanied by a chronic surplus or deficit in the balance of payments can cause a lot of problems. In the first case, there is a possibility of excessive accumulation of reserves, which can lead to inflation. In the second, there is a threat of depletion of foreign exchange reserves. In any of these situations, the Central Bank will have to officially change the price of the monetary unit, that is, cause a revaluation or devaluation.
A floating exchange rate is regulated by a market mechanism: supply and demand in the market, without government intervention. The balance of payments looks like:
In such a situation, the deficit, that is, low demand for domestic goods, is financed by the inflow of funds. A depreciation is called depreciation. This makes domestic goods cheaper and promotes the development of exports. The surplus is financed by the outflow of funds. If domestic goods are in great demand, the interest of foreign investors grows along with the exchange rate of the national currency. This situation is called a rise in prices. Foreigners are buying banknotes of a given country. This reduces exports, stimulating imports and depreciating the national exchange rate.
The modern system is not completely flexible. The US Federal Reserve and European Central Banks do not allow the dollar to fluctuate freely in order to prevent a sharp fall (as in 1985). Therefore, they buy it, artificially increasing demand and maintaining a higher exchange rate.
The situation in the domestic market
In the Russian Federation, the currency corridor first appeared on June 8, 1995. Since 1996, a sliding peg of the ruble to the dollar has appeared. This system is called the inclined currency band. The price change depended on the forecasted inflation levels with small deviations. Since 2008, a dual-currency corridor began to operate, which was adhered to by the reserves of the Central Bank.
The value of the ruble in the national currencies of other countries largely depends on the volume of exports.
Correlation of the Russian currency rate with USD and EUR
In 2008-2009. against the background of a decrease in exports, the ruble appreciated, although the correlation dependence is quite high. This indicates the weakness of the world's reserve currencies. The -0.78 figure shows that the increase in the national currency is taking place against the background of a decrease in the volume of supplies of goods to other countries. In the period 2010-2011. the ruble exchange rate depreciated against the backdrop of the country's recovery from the crisis and export growth. In 2012-2013, the national currency strengthened against the dollar and the euro, and a direct dependence appeared.
In April 2014, the ruble reached a historical level in relation to the dollar (1:50), and then fell sharply (to 36). Although fluctuations are common in countries with floating prices, the changes that have occurred in the past year were difficult to predict.
Floating ruble
For a long time, the Central Bank did not dare to raise the key rate, on the basis of which the banking system is refinanced. In recent months, the Bank of Russia has "sponsored" KB the amount of 5 trillion rubles. The main source of such investments is loans secured by the Central Bank and non-marketable assets. With the depreciation of the ruble, the KB's free cash resources were directed to the foreign exchange market. Today it is more profitable to conduct speculative operations than to invest in the economy. To avoid such situations, European Central Banks have raised interest rates since last year. The Bank of Russia, on the one hand, limited the capital inflow to 5.5%, and on the other hand, it restrained the devaluation of the ruble at the expense of the gold and foreign exchange reserve. And only in March 2014 he raised the discount rate to 7%. This decision was prompted by the need to raise the metallurgy and mining industry. They have become practically unprofitable. The only way to remedy the situation is to weaken the ruble against the dollar.
Summary
The exchange rate reflects the value of the national currency through the foreign one. It should be regulated by the state and the Central Bank. If a clear relationship is established, then it is a fixed rate. If the price fluctuates depending on supply and demand, it is floating. These exchange rate regimes maintain a certain price ratio.
Exchange rate - there is the price of a monetary unit of a certain country, which is expressed in the number of monetary units of any other country, during purchase and sale transactions between these countries. That is, the exchange rate is the exchange rate of one currency against another, or, in other words, the unit price of one currency in the units of another.
The exchange rate is determined by a number of factors. Some of them are listed below, on this page of our site.
1. The general level of prices in the countries participating in the exchange.
2. Expected inflation rates in the countries participating in the exchange.
3. The level of interest rates in the countries participating in the exchange.
4. The degree of trade relations that the governments of the countries participating in the exchange have for any political as well as economic considerations.
The countries participating in the exchange are two countries between which an exchange of some kind takes place. In particular - currency exchange.
There are several types of exchange rates. We will consider some of them in more detail below, on this page.
Direct quotes. In most countries, as you know, exchange rates are expressed in the national currency of these countries. For example, in the Russian Federation one US dollar will cost a certain amount of rubles, for example, 30 rubles. A direct quote is a quote that demonstrates how many units of one currency are contained in $ 1.
Indirect quotes- these are quotes that demonstrate how many US dollars are contained in one unit of the national currency of a particular country. In particular, this type of exchange rate is used in the UK, where the national currency rate is higher than $.
Cross-courses- this is the ratio between the exchange rates of two countries, which follows from the exchange rate in relation to any other country.
Spot rate- this is when the price of one unit of the currency of one country, expressed in the currency of any other country, is established at the time of any transaction with the participation of these countries. A prerequisite for such an exchange is that currencies are exchanged between counterparty banks on the second business day after the transaction has been concluded.
Classification of types of exchange rates.
Consider below, on this page of our information project about the Forex market, some criteria, as well as some types of exchange rates.
The types of exchange rates are divided according to the following criteria.
1. By the method of fixation
2. By the method of calculation
3. By type of transactions
4. By the method of establishing
5. Relative to parity
6. On accounting for inflation
7. By way of sale
In relation to the above criteria, the following types of exchange rates are distinguished.
1. Floating
2. Fixed
3. Mixed
4. Parity
5. Actual
6. Derivatives transactions
7. Spot transactions
8. Swap deals
9. Official
10. Informal
11. Overpriced
12. Understated
13. Parity
14. Purchase rate
15. Selling rate
16. Average rate
17. Real
18. Rated
19. Cash sale rate
20. Cashless sales rate
21. Wholesale exchange rate
22. Banknote
The main types of exchange rates were listed above.
The most important elements of any monetary system are currency and exchange rates.
CURRENCY (from Italian valuta- price, value) is a monetary unit used to measure the value of a product.
Concept "currency" applies in three ways:
a) the country's monetary unit (dollar, yen, ruble, etc.) and one or another type of it: paper, metal;
b) foreign currency - banknotes of foreign states, as well as credit and means of payment, expressed in foreign currency units and used in international settlements;
c) international (regional) monetary unit and means of payment (SDRs issued by the IMF and EURO, issued by the European System of Central Banks, headed by the European Central Bank).
Depending on the mode of use, currencies are divided into:
a) fully reversible (freely convertible),
b) partially reversible (partially convertible),
c) irreversible (non-convertible, closed).
Fully reversible the currencies of countries are called, the legislation of which practically does not have currency restrictions. These currencies can be exchanged for any other currencies without special permissions. These include the US dollar, Canadian dollar, Swiss franc, Japanese yen, and a few others.
Partially reversible are the currencies of countries in which currency restrictions remain, especially for residents 1, in relation to a certain range of foreign exchange transactions,
TO irreversible includes the currencies of those countries in which various restrictions and prohibitions apply both for residents and non-residents concerning the import and export of national and foreign currency, currency exchange, sale and purchase of currency and currency values, etc.
Currency convertibility is one of the tools by which the influence of national borders on the movement of goods, services and capital on a global market scale is neutralized.
CONVERSIBILITY, or convertibility (from Lat. Convertere- to change, transform) - the ability of the national currency freely, without restrictions, exchange for foreign currencies and vice versa without direct government intervention in the exchange process.
CURRENCY RATE is the value ratio of two currencies during their exchange, or the "price" of the monetary unit of one country, expressed in the monetary units of another country or in international means of payment. It reflects in an average form a complex set of relationships between two currencies: the ratio of their purchasing power; inflation rates in the respective countries; demand and supply of specific currencies in international currency markets, etc.
The most important element of the monetary system is currency parity - the ratio between the two currencies, established by law. Under monometallism - gold or silver - the base of the exchange rate was monetary parity - the ratio of monetary units of different countries according to their metal content. It coincided with the concept of currency parity.
The exchange rate regime is also an element of the monetary system. Differ fixed exchange rates fluctuating within narrow limits, and floating rates that change depending on market demand and supply of currency, as well as their varieties.
Under gold monometallism, the exchange rate relied on gold parity - the ratio of currencies according to their official gold content - and spontaneously fluctuated around it within the gold points. The classical mechanism of gold points operated under two conditions: free purchase and sale of gold and its unlimited export. The limits of exchange rate fluctuations were determined by the costs associated with the transportation of gold abroad (freight, insurance, loss of interest on capital, testing costs, etc.), and in fact did not exceed ± 1% of parity. With the abolition of the gold standard, the gold dot mechanism ceased to function.
The exchange rate with fiat money was gradually torn away from gold parity, as gold was pushed out of circulation into a treasure. This is due to the evolution of commodity production, monetary and monetary systems. For the mid-1970s. the basis of the exchange rate was the gold content of currencies - the official scale of prices and gold parities, which were fixed by the MYTH after the Second World War. The measure of the ratio of currencies was the official price of gold in credit money, which, along with commodity prices, was an indicator of the degree of depreciation of national currencies. In connection with the separation for a long time of the official price of gold fixed by the state from its value, the artificial nature of gold parity has increased.
The exchange rate has a great impact on many macroeconomic processes in the global and national economy. The level of the exchange rate, with the help of which the prices of goods and services produced in different countries are compared, determines the competitiveness of national goods in world markets, the volume of exports and imports, and, consequently, the state of the current account balance.
None of the exchange rate systems have an exceptional advantage in terms of achieving full employment and stable price levels.
The main advantage of the system of fixed exchange rates- their predictability and certainty, which has a positive effect on the volume of foreign trade and international loans. Disadvantages This system is, firstly, the impossibility of conducting an independent monetary policy and, secondly, the high probability of errors when choosing a fixed level of the exchange rate.
The main advantage of a flexible exchange rate lies in the fact that it acts as an "automatic stabilizer" contributing to the settlement of the balance of payments. At the same time, significant fluctuations in exchange rates negatively affect finances, creating uncertainty in international economic relations.
The exchange rate as a macroeconomic indicator reflecting the country's position in the system of world economic relations occupies a special place in the system of indicators used as a means of state regulation of the balance of payments. The reason is that its increase or decrease immediately and directly affects the economic situation of the country. Its foreign economic indicators, foreign exchange reserves, debt, dynamics of commodity and financial flows are changing.
There are several options for establishing exchange rate ratios between national and foreign currencies:
"floating" exchange rate - the rate of the national currency in relation to foreign ones - freely fluctuates depending on supply and demand;
adjustable, or "dirty swimming" - the exchange rate of the national currency fluctuates until the changes reach a certain limit, after which the state begins to use regulatory levers;
"Step swimming" - exchange rates fluctuate, but if certain limits are reached when “fundamental or structural changes” occur, when ordinary financial regulatory measures are insufficient, the country gets the right to devalue, that is, a one-time change in the exchange rate;
"Joint swimming", or the principle of "currency snake" - exchange rates fluctuate around some officially established parity, but at the same time their fluctuations do not leave certain fixed limits;
fixed rate - the national currency is rigidly pegged to another currency or to another parity.
Common to all cases is the use of the dynamics of changes in exchange rates (or the ratio of domestic and foreign currency) to adjust the balance of payments. These changes can be one-time or regular and take the form of devaluation (if the value of the national currency is constantly falling) or revaluation (in case of an excessive appreciation of the national currency).
Regulated or “dirty swimming”, “step swimming”, “joint swimming”, or the principle of “currency snake” - all forms of currency regulation are modified versions of two main approaches to regulating exchange rate relations: a “floating” exchange rate that freely fluctuates in depending on supply and demand, and a rigidly fixed rate. The individual elements of these two courses are combined in various combinations.
The peculiarity of the freely fluctuating exchange rate is that its fluctuations are considered, if not as the only, then at least the most important means of ensuring the regulation of the country's balance of payments. This is explained by the adjustment mechanism: an easier way to equalize the balance is to change the price of the currency that determines the relationship between prices, compared, for example, with the restructuring of the entire internal mechanism of economic ties (taxation, emission activities, etc.). Fluctuations in the price of a currency, occurring in parallel with the payment imbalance, make it possible to make adjustments less “painfully”, without attracting external sources of financing. Proponents of the floating exchange rate emphasize its ability to automatically regulate the value of exports and imports.
A "floating" exchange rate allows the export of goods for which the country has a comparative advantage, and thus optimizes its participation in the international division of labor.
The advantages of a “floating” exchange rate include the government's ability to pursue a relatively independent national economic policy (primarily aimed at providing more employment and increased economic growth).
For example, supporters of the introduction of a "floating" US dollar rate note the need for a more independent economic policy in the context of the US dollar fulfilling the function of the world currency and the obligations arising from this.
In modern conditions, the exchange rate is influenced by many factors that cannot be taken into account by either the government, or the Central Bank, or any other official bodies.
It is the “floating” exchange rate that most realistically reflects these impacts and provides an effective response to them, indicating the real value of the national currency in the world market. This approach explains why in most countries completely free floating was used only for short periods of time to determine the real price of the national currency.
At the same time, the “floating” rate has a disadvantage. Significant short-term fluctuations in it can destabilize foreign trade transactions and lead to losses due to the impossibility of fulfilling previously concluded contracts.
The listed disadvantages exclude a fixed rate pegged to any stable value unit. The fixed rate allows predicting entrepreneurial activity, regulating the level of profitability of future investment programs. I Almost all entrepreneurs and bankers are in favor of a fixed rate of the national currency.
A fixed exchange rate is especially important for industries focused on a significant volume of imports (high-tech industries) with a high share of exports in total production. Such a rate means the forecasted in the future the amount of the transferred currency required for the development of investment programs related to a long payback period of the invested funds. The fixed rate is effective for organizations with long-term and stable relationships. It is especially beneficial for maintaining and maintaining the political "face" of the leadership and testifies to the strength and reliability of the government's economic policy. The government undertakes to maintain the stability of the currency, and, accordingly, the position of the country in the system of world economic relations. The country's leadership, as it were, confirms that there is enough confidence and financial resources at the national and international levels in order to maintain the stability of the national currency. At the same time, it assumes the costs of “smoothing” possible short-term fluctuations, which are especially dangerous for foreign trade transactions.
The introduction of a fixed exchange rate poses a number of problems for the national government. The most important of them is maintaining "external equilibrium", that is, balancing external settlements in order to maintain the exchange rate at a constant level.
The efficiency and expediency of using fixed or "floating" exchange rates as a means of regulating the balance of payments can be summarized as follows. As evidence of the stability and strength of the country's economic and political system, a fixed exchange rate can only exist in the context of a stable macroeconomic policy of the government. Job creation programs, tax policy - everything should be subordinated to the interests of maintaining a stable exchange rate of the national currency.
