Exchange Rate Systems Explained | A Level & IB Economics

Описание: In this revision video for A Level and IB Economics, we explain the key characteristics of different currency (exchange rate) systems - ranging from free floating, to managed floating and fixed currency systems.

VIDEO CHAPTERS
00:00 Introduction
00:34 Free floating exchange rates
01:59 Managed floating exchange rates
04:31 Fixed exchange rates
06:07 Currency board system
06:52 Summary: key features of each system
08:09 Choice of currency system by country

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VIDEO SUMMARY

This video is about different exchange rate systems that countries can choose.

The video explains five main exchange rate systems: free floating, managed floating, semi-fixed, fixed, and currency board systems.

Free floating exchange rate system: The currency value is determined by supply and demand in the foreign exchange market. The central bank does not intervene to influence the exchange rate. There is no target for the exchange rate. An example of a country that uses a free floating exchange rate system is the United Kingdom.

Managed floating exchange rate system: The currency value is mainly determined by supply and demand in the foreign exchange market, but the central bank will occasionally intervene to influence the exchange rate. Examples of countries that use a managed floating exchange rate system are Brazil and India.

Semi-fixed exchange rate system: The currency value is allowed to fluctuate within a certain band. The central bank will intervene to buy or sell foreign currency to keep the exchange rate within the band. An example of a country that uses a semi-fixed exchange rate system is China.

Fixed exchange rate system: The currency value is pegged to another currency or a basket of currencies. The central bank must intervene heavily to maintain the peg. An example of a country that uses a fixed exchange rate system is Denmark.

Currency board system: A currency board system is similar to a fixed exchange rate system. The domestic currency is fully backed by a foreign reserve currency. The central bank is required to maintain enough foreign currency reserves to exchange all domestic currency in circulation at the fixed exchange rate. An example of a country that uses a currency board system is Hong Kong