A managed float that allows the exchange rate to be determined by the market, while the central bank keeps a watchful eye on currency fluctuations to intervene when necessary. In so doing, the monetary authorities don’t have in mind a specific exchange rate target. Intervention may be positive (active) or negative (passive). Positive intervention implies the injection of foreign currency into the local market to help ease pressure on local currency. This has the effect of increasing the supply of foreign currencies and pressing exchange rates (in terms of local currency) downward. Negative intervention involves the aggressive use of interest rate policy, imposition of foreign exchange regulations or exercise of moral suasion that constrain foreign exchange activity, or though intervention by other public entities.
International Finance
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