Why do countries float their currency in the fx . Pls explain in a simplified and quantitative way. Thankyou
Because the alternative — a pegged currency — is difficult (and, ultimately, impossible) for a nation’s central bank to defend.
You’re asking a complicated question, and demanding a simple answer.
To understand why [B]pegged currencies are ultimately forced, by market realities, to un-peg[/B] — study the partial peg of the pound sterling to the ERM (European Exchange Rate Mechanism) in 1990-1992, and the failure of that partial peg, when George Soros mounted a massive attack on the pound, [B]forcing the Bank of England to re-value the pound at a cost to the Bank of £3.3 Billion.[/B]
Then study the history of the Thai baht before and after the Asian Financial Crisis of 1997, when its peg to the U.S. dollar collapsed, [B]nearly bankrupting the Bank of Thailand.[/B]
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