Within the foreign exchange market, the exchange rate float represents the state of currencies, the exchange rate of which is independently set according to supply and demand. This exchange system determines that the value of the currency will be established by the market, without the participation of any entity with monetary power.
The currency float can be divided into clean float and dirty float. The clean float has to do with the state of the currency whose exchange rate is the result of the free play of supply and demand, without originating at any time, the participation of the central bank of the corresponding nation.
For its part, the dirty float is related to the state of the currency whose exchange rate rotates according to supply and demand; but where there is, an intervention of the central bank when buying or selling, in order to stabilize the currency in case of economic crises. This is the most common float in most cases.
Floating exchange systems can be beneficial by not varying the reserve volumes of central banks, there will be no additional reserve demands from international financial organizations. Likewise, variations in this exchange rate ensure international balance, causing economic policy to be unconcerned about achieving this objective, thus allowing greater independence in other lines of action.
However, certain inconveniences may arise that could generate fear of exchange rate floating, such as difficulties in the demand for exports and imports, because when exchange rates stop varying, the uncertainty about the value of transactions is high. On the other hand, the presence of speculators can make exchange rates vary by intervening in the foreign exchange market. It causes a devaluation of the national currency which causes an increase in tradable goods.
However, the exchange system represents an essential element for the economy of any nation and for its international relations, since it will be able to define business and investment strategies, which influence the gross domestic product, since depending on these, the degree of exports and imports will vary and investments will strengthen
