202409271844 Status: #idea Tags: #monetary_policy #economics #politics # Floating exchange rate system A monetary system where the exchange rate between two currencies is set by market forces: the supply and demand of each currency dictates the exchange rate. This is the current monetary system for most economies today (though some do peg to the dollar). In this system, if country A experiences inflation while country B does not, its currency depreciates relative to country B’s currency. There is more of country A’s currency in circulation, which means we need more of it in order to purchase 1 unit of country B’s currency. By the same token, country B needs less of its own currency to purchase 1 unit of country A’s currency. Hence, country A’s exports to country B become cheaper (and thus more competitive) while country B’s exports to country A become more expensive (and thus less competitive). [[Floating exchange rate system]] --- # References