Importance of Exchange Rates in world economies

The Case for Float Exchange Rates: - autonomy of Central Bank - symmetry among countries - spot rate provides a clear market signal; automatically adjusts to "clear markets" - market is the best mechanism for restoring equilibrium - speculators provide stability - free flow of capital between markets The Case against Float Exchange Rates/ The Case for Fixed Exchange Rates * fixed rates impose discipline on monetary policy * reduce volatility in prices; uncertainty * avoid costly hedging …

…sign for monetary union members and a positive sign for nonmembers with pegged currencies. That is, currencies pegged to a single money outside monetary unions yield better economic performance. Moreover, the exchange rate regime alteration helped the real effective exchange rate adjust to its equilibrium level, improving the growth of exports ratio to GDP. Therefore I believe that floating exchange rates would be better because of the economic effectiveness and the better performance it proposes.