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Managed float regime

A managed float regime, also known as a dirty float, is an exchange rate system in which the value of a country's currency is primarily determined by market forces of supply and demand in the foreign exchange market, but the monetary authority intervenes occasionally—through direct actions like buying or selling foreign currency or indirect measures such as interest rate adjustments—to influence the exchange rate, moderate short-term fluctuations, or achieve broader economic objectives without committing to a specific target or path.^[1]^[2] This regime offers a middle ground between fixed exchange rate systems, where the currency is pegged to another currency or basket, and pure floating regimes, where the exchange rate is left entirely to market dynamics with minimal official involvement.^[1] In a managed float, interventions are typically discretionary and based on judgmental indicators such as balance of payments positions, international reserves, or parallel market developments, rather than predefined rules or bands.^[3]^[2] Unlike stabilized arrangements, which maintain the rate within narrow margins around a central parity, managed floats allow greater flexibility to absorb external shocks while retaining some policy control.^[1] As of the end of 2024, the International Monetary Fund classifies 13 countries as operating under "other managed arrangements," a category that encompasses managed floating with no predetermined path, representing a continued shift toward more flexible regimes in emerging and developing economies.^[2]^[4] Notable examples include China, where the People's Bank of China references a basket of currencies and intervenes to guide the renminbi's value; India, which employs interventions to curb volatility in the rupee; Turkey, facing high inflation pressures; and Indonesia, with efforts to maintain stability. Other adopters include Russia and Vietnam, many of which use this approach to balance export competitiveness, inflation control, and financial stability in volatile global conditions.^[2]^[1] The advantages of a managed float include preserving monetary policy independence for domestic goals like inflation targeting, while mitigating risks from abrupt currency swings that could harm trade or investor confidence—particularly in economies with underdeveloped financial markets or exposure to commodity price volatility.^[1] However, frequent interventions can blur transparency, potentially leading to moral hazard or depletion of reserves if not calibrated carefully, as seen in cases where central banks defend against speculative attacks.^[1] Since the 1990s, the global trend has favored managed floats over rigid pegs, especially after crises like the 1997 Asian financial meltdown highlighted the vulnerabilities of fixed regimes.^[1]

Definition and Characteristics

Core Definition

A managed float regime, also known as a managed floating exchange rate system, is a hybrid exchange rate arrangement in which the value of a country's currency is primarily determined by market forces of supply and demand in the foreign exchange market, but the central bank intervenes occasionally to influence the rate and mitigate excessive fluctuations.^[3] This system contrasts with a pure float, where no official intervention occurs, by allowing monetary authorities to step in when market conditions might otherwise lead to undue volatility that could disrupt economic stability.^[5] At its core, an exchange rate represents the price of one currency in terms of another, reflecting the relative value needed to purchase foreign goods, services, or assets.^[6] In a managed float, the exchange rate fluctuates according to market dynamics but is smoothed through central bank actions such as buying or selling foreign currency reserves in the spot market.^[3] These interventions aim to prevent sharp depreciations or appreciations that could harm trade competitiveness or import costs, without committing to a fixed target or predetermined trajectory for the rate.^[7] The term "dirty float" serves as a common synonym for this regime, highlighting the "dirtying" of a theoretically clean market-driven float through periodic official interventions.^[5] The primary rationale for such management is to support broader economic stability objectives, including moderating inflation pressures from imported goods or bolstering export sectors by avoiding abrupt currency swings that could undermine international competitiveness.^[8] Central banks typically base these actions on judgmental indicators like reserve levels or balance-of-payments trends, ensuring the regime balances flexibility with controlled influence.^[3]

Key Features

In a managed float regime, the exchange rate is primarily determined by market forces of supply and demand, reflecting underlying economic conditions such as trade balances and capital flows, but central banks periodically intervene to prevent excessive volatility or misalignment from perceived equilibrium levels. This flexibility allows the currency to adjust gradually to economic shocks without the rigidity of fixed pegs, while interventions ensure stability without committing to a specific parity.^[9] Central banks in managed float systems use discretionary interventions to guide the exchange rate, responding to market conditions without announcing fixed targets that could invite speculation. These actions provide operational discretion, allowing policymakers to address deviations without predefined adjustment paths or margins.^[10] Foreign exchange reserves play a central role in these interventions, serving as the primary tool for central banks to buy or sell currency in the market; accumulation of reserves during periods of currency appreciation signals a commitment to preventing overvaluation, while depletion during depreciation supports the currency and mitigates downside risks to financial stability. Reserve levels thus act as a buffer against external shocks, with interventions aimed at smoothing rather than overriding market trends.^[11] Transparency in managed float regimes varies, with some central banks announcing intervention thresholds or rules to enhance market predictability and reduce uncertainty, while others adopt a discretionary approach—often termed "constructive ambiguity"—to avoid tipping off speculators about exact limits and thereby deterring disruptive bets against the currency. For instance, the Bank of Canada discloses interventions in real time to bolster confidence, whereas Singapore maintains opacity on specific operational bands despite clear policy objectives. This balance helps preserve policy effectiveness without fully revealing strategic boundaries.^[12] A key distinction in managed float interventions lies between sterilized and non-sterilized operations: sterilized interventions involve offsetting the monetary impact of foreign exchange purchases or sales through domestic open market operations, such as issuing bonds to absorb excess liquidity and thereby isolating exchange rate adjustments from changes in the money supply; in contrast, non-sterilized interventions directly alter the monetary base, potentially influencing interest rates and inflation as the central bank expands or contracts domestic liquidity alongside reserve changes. Sterilized actions are common to maintain independent monetary policy control, though they may still affect credit conditions via banks' portfolio adjustments.^[13]

Historical Development

Origins in Post-Bretton Woods Era

The Bretton Woods system, established in 1944 to promote stable international monetary relations through fixed exchange rates pegged to the US dollar and convertible to gold, began to unravel in the late 1960s due to persistent US balance-of-payments deficits and speculative pressures on currencies. The system's collapse accelerated with the "Nixon Shock" on August 15, 1971, when President Richard Nixon suspended the convertibility of the US dollar into gold, effectively ending the gold-dollar peg that underpinned the regime.^[14] This action, combined with a 10% import surcharge, triggered global uncertainty and capital flows, leading to the devaluation of the dollar and the breakdown of fixed parities. By March 1973, major industrialized countries, including the United States, Japan, and several European nations, abandoned fixed rates in favor of floating exchange rates, marking the transition to a more flexible international monetary system.^[15]^[16] Theoretical foundations for this shift were laid in the 1960s by economists Robert Mundell and Marcus Fleming, whose Mundell-Fleming model analyzed macroeconomic policy in open economies under different exchange rate regimes. The model demonstrated that countries could not simultaneously maintain fixed exchange rates, free capital mobility, and independent monetary policy—a constraint known as the "impossible trinity" or trilemma. In the post-Bretton Woods context, rising capital mobility and the need for monetary autonomy to address domestic inflation and growth pressures made fixed rates untenable, paving the way for floating regimes where exchange rates could adjust to market forces while allowing policy flexibility.^[17]^[18] Early experiments with managed floating emerged in the 1970s as countries sought to mitigate the volatility of pure market-driven rates. The United Kingdom, facing severe capital outflows and speculative attacks on the pound amid domestic economic strains, allowed the sterling to float in June 1972, with authorities intervening occasionally to smooth fluctuations rather than targeting a fixed parity. Similarly, Japan transitioned to a floating yen in February 1973 following intense appreciation pressures after the Smithsonian Agreement's failed attempt to realign rates; Japanese officials actively intervened in foreign exchange markets to lean against excessive yen movements, establishing a managed float to support export competitiveness. These initial adoptions reflected a pragmatic response to the Nixon Shock's aftermath, balancing flexibility with stability.^[19]^[20] The International Monetary Fund formally recognized "managed floating" as a distinct exchange rate category in its reports during the 1970s, reflecting the growing prevalence of such arrangements. In its Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) and related publications from 1973 onward, the IMF classified regimes where rates were market-determined but subject to official interventions to prevent disorderly conditions, distinguishing them from rigid pegs or independent floats. This classification, introduced amid the variability of rates post-1973, provided a framework for monitoring the new hybrid systems adopted by member countries.^[21]^[22]

Evolution and Global Adoption

The Latin American debt crisis of the 1980s, triggered by sharp rises in international interest rates and a sudden halt in capital inflows starting in 1982, compelled countries like Mexico to abandon rigid fixed exchange rate systems in favor of greater flexibility to address balance-of-payments imbalances and restore competitiveness.^[23] This shift intensified after Mexico's 1994 Tequila Crisis, when the government ended its crawling peg regime and transitioned to a managed float, allowing the central bank to intervene selectively to stabilize the peso amid capital flight and volatility.^[24] Similar adjustments occurred across the region, marking an early wave of managed float adoption as a pragmatic response to external shocks and the limitations of pegged systems.^[23] The Asian Financial Crisis of 1997–1998 further accelerated the global embrace of managed floats in emerging markets, as fixed pegs in countries like Thailand and Indonesia collapsed under speculative pressures, leading to severe economic contractions.^[25] The International Monetary Fund (IMF), in its bailout programs and policy advice, recommended transitioning to more flexible exchange rate regimes, including managed floats, to enhance resilience against capital flow reversals and allow for better absorption of shocks without depleting reserves.^[25] This guidance influenced widespread reforms in Southeast Asia and beyond, promoting managed floats as a middle ground that preserved some policy autonomy while mitigating disorderly depreciations.^[8] Following the 2008 Global Financial Crisis, managed float adoption gained momentum in BRICS nations (Brazil, Russia, India, China, and South Africa), where policymakers increasingly used targeted interventions to counter exchange rate volatility, support export-led growth, and manage foreign reserve accumulation amid global uncertainty.^[26] For instance, Brazil and India reinforced their managed float frameworks with occasional central bank actions to smooth excessive fluctuations, balancing domestic inflation control with external competitiveness.^[26] This trend reflected a broader recognition of managed floats' role in fostering stability during periods of heightened global risk aversion. According to the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), approximately 33% of IMF member countries were classified under floating exchange rate arrangements as of end-2023, with a significant portion involving managed floats to guide market-driven rates.^[27] Recent shifts, such as Argentina's 2025 reforms under its Extended Fund Facility program, have further exemplified this evolution, transitioning to a managed float within a widening band (1,000–1,400 pesos per dollar) to promote flexibility, reduce multiple exchange rates, and rebuild reserves while aligning with IMF-supported disinflation efforts.^[28]

Operational Mechanisms

Intervention Strategies

Central banks in managed float regimes primarily employ direct market interventions by buying or selling foreign currency in the spot market to influence exchange rates, aiming to moderate volatility without pegging to a specific level.^[29] These interventions can be one-sided, where the central bank acts to counter excessive appreciation or depreciation—such as selling foreign reserves to support a weakening domestic currency—or two-sided, involving purchases and sales in both directions to smooth fluctuations regardless of direction; however, one-sided actions predominate.^[29] As of a 2019 survey, over 90% of emerging market economy (EME) central banks occasionally use spot transactions, while derivatives like forwards and swaps are employed routinely by more than a quarter to extend intervention effects.^[29] Recent trends indicate that about half of central banks have intervened in FX markets in the past 12 months, amid heightened global instability.^[30] Moral suasion serves as a non-reserve-depleting tool, where central banks use communications, forward guidance, or direct persuasion to shape market expectations and influence private sector behavior in foreign exchange markets.^[31] This approach leverages the central bank's authority to encourage banks or corporates to adjust positions, such as reducing speculative flows, and is reported by nearly a quarter of central banks in developing and transition economies as an intervention method, based on a 2000 survey.^[31] Capital controls complement these strategies by imposing temporary restrictions on capital flows, particularly outflows, to bolster currency support during periods of pressure.^[32] For instance, Brazil implemented controls on portfolio inflows from 2008 to 2011, which indirectly managed outflows and supported FX interventions in its managed float system.^[32] Such measures are often motivated by overheating risks and are more common in non-inflation-targeting regimes.^[32] Interventions under managed floats are typically infrequent and modest in scale, occurring on an average of 30 days per year across EMEs and using reserves equivalent to 0.25-0.4% of GDP in active quarters, focused on smoothing short-term swings rather than maintaining fixed rates.^[29]^[33] Most are discretionary rather than rule-based, with only a minority of central banks following systematic rules.^[29] Empirical studies indicate that these interventions are effective in the short term, particularly within one month, for reducing volatility and providing liquidity, but have limited long-term impact beyond six months unless supported by credible policy frameworks.^[29] For example, Bank of Japan interventions in the second half of the 1990s successfully influenced yen-dollar exchange rate movements on impact days, though overall effectiveness waned without accompanying monetary policy changes.^[34]

Monitoring and Adjustment Tools

Central banks in managed float regimes employ real-time monitoring tools to track exchange rate movements and identify potential misalignments that could undermine economic stability. A key indicator is the real effective exchange rate (REER), which measures a currency's value against a basket of trading partners' currencies, adjusted for inflation differentials to reflect competitiveness.^[35] By analyzing REER indices, authorities detect deviations from equilibrium levels, such as overvaluation that might signal building pressures on trade balances or reserves.^[36] This monitoring enables proactive assessments without immediate market interventions, focusing instead on data-driven oversight of broader market dynamics.^[37] To forecast and mitigate exchange rate volatility, central banks utilize econometric models such as generalized autoregressive conditional heteroskedasticity (GARCH) frameworks, which capture time-varying variance in currency movements. GARCH models, including extensions like GARCH-MIDAS, integrate high-frequency exchange rate data with lower-frequency macroeconomic fundamentals to predict volatility clusters and persistence.^[38] These models help quantify risks from external shocks, informing the timing and scale of adjustments in managed regimes by estimating conditional variances that traditional mean models overlook.^[39] International coordination enhances monitoring through institutions like the International Monetary Fund (IMF) and the Bank for International Settlements (BIS). Under IMF Article IV, member countries undergo annual consultations where exchange rate policies are reviewed for alignment with global adjustment needs, including assessments of interventions and reserve adequacy.^[40] The BIS facilitates this by providing standardized effective exchange rate data and serving as a forum for central bank discussions on rate stability, promoting benchmark alignments without prescriptive interventions.^[41] Since the 2010s, technological aids have bolstered these efforts, with central banks deploying algorithmic trading surveillance systems to monitor high-frequency FX flows and preempt speculative pressures that could destabilize managed floats.^[42] These tools analyze order book dynamics and execution patterns in real time, enabling early detection of anomalous activities while complementing traditional intervention strategies.^[43]

Advantages and Challenges

Economic Benefits

The managed float regime enhances monetary policy autonomy by allowing central banks to set independent interest rates while using occasional interventions to mitigate external shocks, effectively navigating the constraints of the impossible trinity—where full capital mobility, exchange rate stability, and monetary independence cannot coexist simultaneously.^[44] This flexibility enables policymakers in open economies to prioritize domestic objectives like inflation control without fully surrendering to market-driven exchange rate fluctuations.^[10] Managed floats contribute to reduced exchange rate volatility compared to pure floating regimes, as central bank interventions systematically dampen excessive swings in currency values. Empirical evidence indicates that volatility in managed float arrangements is notably lower than in independent floating systems, such as those observed in major economies like the United States and Japan.^[45] This fosters a more predictable environment for trade and investment.^[45] By permitting targeted depreciations, managed floats support export competitiveness without inducing chronic inflation, enabling economies to adjust currency values strategically to improve trade balances. This approach allows central banks to counteract appreciations that might erode export advantages, thereby bolstering net exports and current account positions.^[46] Such interventions help maintain price competitiveness in global markets, particularly for emerging economies reliant on export-led growth.^[47] The regime facilitates reserve accumulation, providing buffers against financial crises. For example, following the 1997 Asian financial crisis, countries like South Korea and Thailand used managed interventions to build substantial foreign exchange holdings, enhancing resilience to external shocks and supporting sustained expansion in export-oriented economies.^[48]

Potential Risks and Limitations

One significant risk associated with managed float regimes is the potential for inconsistent central bank interventions to erode policy credibility and invite speculative attacks. When interventions appear ad hoc or insufficiently transparent, markets may perceive them as signals of underlying economic weaknesses, prompting investors to bet against the currency. This can create a moral hazard, as economic agents anticipate central bank support to cushion losses, encouraging excessive risk-taking in foreign currency borrowing and exacerbating vulnerabilities during stress periods.^[49]^[50] Over-intervention to stabilize the exchange rate can lead to rapid depletion of foreign exchange reserves, limiting the central bank's ability to respond to future shocks and potentially forcing abrupt policy shifts. In managed floats, sustained buying or selling of foreign currency to counter market pressures may exhaust reserves below critical thresholds, such as the International Monetary Fund's benchmark of at least three months of import cover for economies with flexible exchange rates. This reserve drain not only heightens financial fragility but can also trigger confidence crises if markets question the sustainability of the regime.^[51]^[45] Managed depreciations under this regime can amplify inflation through exchange rate pass-through, where currency weakening raises import prices and feeds into domestic inflation dynamics. Empirical evidence indicates that pass-through effects are often stronger for depreciations than appreciations, complicating central banks' efforts to maintain price stability amid external pressures. This imported inflation can undermine monetary policy effectiveness, particularly in import-dependent economies.^[52] Political economy challenges further compound these risks, as governments may prioritize short-term exchange rate fixes over structural reforms, fostering dependency on interventions. Models of sudden stops, such as those developed by Calvo and colleagues, highlight how such pressures can precipitate capital flow reversals, balance sheet mismatches, and real exchange rate volatility in emerging markets with dollarized liabilities. This short-termism often delays necessary adjustments, increasing the likelihood of crises.^[53] Empirical studies, including a 2003 European Central Bank analysis, suggest that managed floats exhibit reduced effectiveness in environments of high capital mobility, where rapid cross-border flows overwhelm intervention capacities. Intermediate regimes like managed floats are particularly susceptible to speculative pressures and external shocks in integrated financial systems, as interventions struggle to counter volatile portfolio movements. Monitoring tools, such as reserve adequacy metrics, can help mitigate these risks but do not eliminate the inherent constraints.^[54]

Comparisons with Other Exchange Rate Regimes

Versus Fixed Exchange Rates

In fixed exchange rate regimes, central banks must continuously intervene to maintain the currency's value at a predetermined level, often depleting foreign exchange reserves during periods of market pressure and severely constraining monetary policy independence, as the domestic interest rate must align with that of the anchor currency to prevent capital outflows.^[44] In contrast, managed float regimes permit central banks greater discretion to intervene selectively, preserving reserves for targeted stabilization while allowing monetary policy to address domestic objectives like inflation control or growth support.^[55] This flexibility reduces the need for exhaustive reserve defense, enabling policymakers to respond to internal economic conditions without the rigid constraints imposed by a fixed peg.^[44] Managed float regimes excel at absorbing asymmetric shocks, such as fluctuations in commodity prices, through partial exchange rate adjustments that cushion the impact on output and employment, unlike fixed regimes where such shocks necessitate costly internal devaluations or reserve losses. Empirical studies show that flexible regimes, including managed floats, generally result in milder GDP contractions from terms-of-trade shocks compared to fixed rates, with quicker recoveries facilitated by depreciation that boosts export competitiveness. Countries like Chile and Peru have leveraged this mechanism during the 2014–2016 commodity downturn, using managed depreciations alongside countercyclical policies to stabilize growth without the severe reserve drains seen in fixed-rate peers. Fixed exchange rates provide a strong nominal anchor that enhances credibility and anchors inflation expectations, but they heighten vulnerability to speculative crises when reserves prove insufficient, as exemplified by the 1992 European Exchange Rate Mechanism (ERM) breakdown, where the UK's forced exit amid reserve depletion led to a sharp devaluation and policy realignment.^[44] Managed floats, while introducing some exchange rate uncertainty that can complicate long-term planning, avoid such abrupt collapses by allowing gradual adjustments, though they demand robust institutional frameworks to maintain market confidence.^[55] This trade-off in credibility underscores the fragility of fixed pegs in integrated capital markets, where sudden shifts can amplify economic disruptions.^[56] Transitioning from a fixed to a managed float regime often incurs initial costs, including heightened exchange rate volatility as markets test the new flexibility, consistent with models highlighting the "mirage" of fixed rates' stability in open economies.^[56] Obstfeld and Rogoff's analysis demonstrates that such shifts can trigger short-term spikes in volatility, potentially exacerbating output fluctuations during the adjustment phase, though long-term benefits emerge from reduced crisis risks.^[57] Empirical evidence from emerging markets confirms elevated real exchange rate volatility—around 17.9% under managed floats versus 5.6% under pegs—, necessitating preparatory measures like reserve accumulation and communication strategies to mitigate these dynamics.^[57] Regarding suitability, fixed exchange rates are preferable for small, open economies heavily reliant on a single export commodity, where the nominal anchor minimizes pass-through volatility to prices and trade, fostering stability in dollarized or highly integrated settings.^[44] Managed float regimes, however, suit more diversified economies capable of withstanding moderate exchange rate movements, allowing better alignment of the real exchange rate with varying trade structures and domestic shocks without the rigidity of a peg.^[55] This distinction highlights how managed floats balance stability and adaptability for larger or less homogeneous economies, outperforming fixed regimes in promoting sustainable growth amid diverse external pressures.^[55]

Versus Pure Floating Regimes

A pure floating exchange rate regime allows currency values to be determined entirely by market forces of supply and demand, without any central bank intervention in the foreign exchange market. In contrast, a managed float incorporates occasional interventions to influence the exchange rate, aiming to mitigate excessive fluctuations while still permitting market-driven adjustments. This distinction is evident in historical examples, such as the sharp volatility of the US dollar in the 1980s under a pure float, where the dollar appreciated by over 50% against major currencies between 1980 and 1985 before depreciating rapidly, leading to economic disruptions. Managed floats, by introducing targeted interventions, seek to smooth such swings, reducing the risk of abrupt economic shocks. One key difference lies in the operational overhead of managed regimes, which involve central bank resources for monitoring and intervening in currency markets, including the accumulation or sterilization of foreign reserves. These costs are absent in pure floats, where no such interventions occur, potentially leading to moral hazard in managed systems if markets anticipate central bank support and take excessive risks. For instance, central banks in managed float countries may spend billions on interventions, as seen in emerging markets during the 1997 Asian financial crisis, whereas pure float adopters like the US post-1973 avoided these direct fiscal burdens. Regarding adjustment speed, pure floats enable faster corrections of economic imbalances through immediate price signals in the exchange rate, allowing markets to rapidly reallocate resources. Managed floats, however, can prevent overshooting—where exchange rates move beyond fundamental values—by intervening to stabilize deviations, though this may prolong imbalances if interventions distort market signals. Empirical evidence suggests that managed floats often exhibit lower exchange rate volatility compared to pure floats over the 1990s-2010s, based on analyses of exchange rate data across OECD countries. Policy implications further highlight suitability differences: pure floating regimes are generally more appropriate for advanced economies with deep, liquid financial markets that can absorb volatility without systemic risks, as demonstrated by the euro area and Japan since the 1990s. In contrast, managed floats better serve transitioning or emerging economies, where shallower markets benefit from intervention to build credibility and avoid imported inflation or deflation.

Contemporary Examples

Major Economies Implementing Managed Floats

Several major economies employ managed float regimes to balance exchange rate flexibility with stability, allowing central banks to intervene when necessary to influence currency movements. According to the International Monetary Fund's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) classifications as of 2023 (published 2024), numerous economies utilize floating or other managed arrangements.^[58] China has implemented a managed float for the Chinese yuan (CNY) since the 2005 reforms, when the People's Bank of China (PBOC) transitioned from a fixed peg to a regime based on market supply and demand against a basket of currencies. The PBOC manages the CNY through a daily central parity rate fixing and occasional foreign exchange interventions to maintain stability within an undisclosed trading band. In 2025, the PBOC continued interventions to support the yuan amid global pressures, including potential U.S. tariffs.^[59]^[60]^[61] India's Reserve Bank of India (RBI) operates interventions to limit volatility in the Indian rupee (INR), primarily referenced against a basket of currencies including the USD. The IMF classifies this de facto arrangement as a "stabilized arrangement," reflecting limited volatility through RBI's active market operations, though it evolved from a managed float adopted in 1991. As of 2024, the classification remains stabilized, with recommendations for greater flexibility.^[62]^[63] Singapore's Monetary Authority of Singapore (MAS) maintains a managed float centered on the trade-weighted Singapore dollar nominal effective exchange rate (S$NEER), which is allowed to fluctuate within a policy band periodically adjusted—typically quarterly—to align with domestic inflation forecasts and ensure medium-term price stability. In 2025, MAS eased the appreciation path twice early in the year before maintaining it steady amid slowing growth.^[64]^[65] South Korea's Bank of Korea (BOK) oversees a free floating regime for the Korean won de jure and de facto per IMF classification, intervening in foreign exchange markets to mitigate excessive volatility—a practice intensified following the 1997 Asian financial crisis to safeguard economic stability. In 2024-2025, the BOK conducted interventions to cap dollar-won fluctuations around key levels like 1,385.^[66]^[67]^[68]

Case Studies of Specific Countries

India's adoption of a managed float regime in 1991 marked a pivotal shift following a severe balance-of-payments crisis that prompted comprehensive economic liberalization reforms, transitioning from a fixed peg to a market-determined exchange rate with occasional Reserve Bank of India (RBI) interventions to curb excessive volatility. This framework allowed the rupee to depreciate gradually while enabling the RBI to build foreign exchange reserves through targeted sales and purchases, fostering export competitiveness and attracting foreign investment. A notable episode occurred in 2013 amid a rupee crisis triggered by global tapering of quantitative easing and domestic fiscal pressures, where the RBI intervened by selling approximately $20 billion in reserves and tightening liquidity to stabilize the currency, which had depreciated over 20% against the U.S. dollar in a few months. These measures, combined with structural reforms, contributed to India's sustained economic expansion, with average annual GDP growth averaging around 6.5% from 1992 to 2023, reflecting the regime's role in supporting resilience against external shocks.^[69]^[70]^[71] Singapore has employed a managed float regime since 1981, uniquely centering its monetary policy on the exchange rate through the Monetary Authority of Singapore (MAS), which adjusts the slope, width, and center of an undisclosed policy band for the Singapore dollar nominal effective exchange rate (S$NEER) to anchor inflation expectations. This approach eschews traditional interest rate targeting, thereby mitigating domestic interest rate volatility that could otherwise amplify financial inflows or outflows in a small, open economy heavily reliant on trade. By prioritizing exchange rate management as the primary tool, MAS has effectively imported monetary conditions from trading partners, allowing Singapore to maintain price stability without direct control over money supply or rates. The strategy has proven successful in fostering a low-inflation environment, with core inflation averaging below 2% annually over the past four decades, while supporting robust non-inflationary growth amid regional volatility.^[72]^[73] Following the 2014 annexation of Crimea and subsequent Western sanctions, coupled with a sharp decline in global oil prices, Russia transitioned to a managed float for the ruble under the Central Bank of Russia (CBR), abandoning a prior corridor system in November 2014 to let market forces determine the rate while intervening to prevent disorderly movements. The CBR depleted nearly $80 billion in reserves during late 2014 interventions to support the ruble, which had weakened over 50% against the dollar amid the oil-dependent economy's vulnerability to commodity price swings and restricted access to international capital markets. Post-2014, the regime has involved sporadic CBR actions, such as buying dollars during periods of ruble strength to rebuild reserves and selling during excessive depreciation, helping to stabilize inflation and restore confidence despite ongoing sanctions. In 2025, the ruble strengthened significantly, outperforming major currencies due to high interest rates and capital controls. This managed approach has enabled the economy to adapt to persistent external pressures, with GDP contracting only modestly in subsequent years before gradual recovery.^[74]^[75]^[76] Brazil's experience with a managed float since January 1999 illustrates implementation challenges, as the regime emerged from the collapse of a crawling peg amid capital flight and has since required periodic interventions and capital controls to navigate volatility from commodity price booms and busts. The Central Bank of Brazil (BCB) has conducted frequent foreign exchange swaps and auctions to smooth real fluctuations, particularly during the 2003-2011 commodity supercycle driven by soaring soy and iron ore prices, which fueled inflows but also overvaluation risks. To counter hot money surges, authorities imposed taxes on inflows in 2009 and 2010, temporarily curbing appreciation but highlighting tensions between openness and stability in a high-debt, export-reliant economy. These measures have faced criticism for distorting markets and contributing to recurrent crises, such as the 2015-2016 recession when the real depreciated over 40% amid falling commodities and political turmoil, underscoring the difficulties of balancing intervention with credibility in emerging markets. In 2025, the BCB maintained interventions amid tight policy to combat inflation.^[77]^[78]^[79] Key lessons from these cases emphasize the adaptability of managed float regimes to external shocks, as evidenced by post-COVID-19 adjustments in the 2020s where central banks like the RBI, MAS, CBR, and BCB allowed greater exchange rate flexibility to absorb inflationary pressures from supply disruptions and fiscal stimuli, while using targeted interventions to mitigate spillover effects on growth. In 2024-2025, amid renewed global tensions, these economies continued selective interventions to manage volatility. This flexibility proved instrumental in emerging economies, enabling quicker recoveries compared to more rigid systems, though success hinged on ample reserves and credible policy frameworks to avoid moral hazard from over-intervention.^[80]

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Throughout most of this period, Mexico's managed exchange rate regime was supported by prudent fiscal and monetary policies. The rate of inflation fell ...
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[PDF] Moving to a Flexible Exchange Rate
A monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined ...
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Exchange Rate Behavior in the BRICS - SciELO
After the 2008 global financial crisis the trend was to reduce the degree of exchange rate depreciation, when monetary authorities decided to increase ...
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Annual Report on Exchange Arrangements and Exchange Restrictions 2023
### Summary of Exchange Rate Arrangements (Focus on Managed Floating)
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IMF Executive Board Approves 48-month US$20 billion Extended ...
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[PDF] FX intervention: goals, strategies and tactics
This note examines “sterilised” FX interventions. “Non-sterilised” interventions alter the level of bank reserves and, all else equal, go hand in hand with ...<|separator|>
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[PDF] Foreign exchange market intervention: methods and tactics
May 4, 2020 · Under managed floating ... economies, however, nearly a quarter of the central banks surveyed reported using moral suasion as an intervention tool ...
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[PDF] Capital controls and foreign exchange policy - European Central Bank
Capital controls are often used to manage FX policy, prevent overheating, and protect against capital flows, especially when other policy tools are lacking.
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[PDF] The Diverse Practice of Foreign Exchange Intervention by Central ...
Colombia operates a floating exchange rate regime. The central bank (Banco de la Republica) intervenes in the FX market to manage the level of international ...Missing: authoritative | Show results with:authoritative
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[PDF] Is Foreign Exchange Intervention Effective?
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Effective exchange rates - overview | BIS Data Portal
The BIS effective exchange rates data set covers long time series on nominal and real effective exchange rates.
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Botswana's Real Effective Exchange Rate Targeting Regime
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[PDF] June-2025-FX-Report.pdf - Treasury.gov
The stated policy of the central bank is to maintain a. “managed float” exchange rate, in principle determined by market forces but with flexibility “to ...
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Crawling Bands or Monitoring Bands: How to Manage Exchange ...
The principal cause of changes in the parity—the "crawl"—is typically the inflation differential, to ensure that high domestic inflation does not lead to a ...
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Classification of Exchange Rate Arrangements and Monetary Policy ...
The rate of crawl can be set to generate inflation-adjusted changes in the exchange rate (backward looking), or set at a preannounced fixed rate and/or below ...Missing: formula | Show results with:formula
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Forecasting exchange rate volatility with monetary fundamentals
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(PDF) Modelling exchange rate volatility using GARCH models
Aug 10, 2025 · This paper aims to model the volatility of USD and EUR exchange rates against TRY for the period from January 2005 to December 2019
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Article IV Exchange Arrangements and Surveillance in - IMF eLibrary
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I. The Specific Role of the BIS in International Monetary Cooperation
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[PDF] FX execution algorithms and market functioning
While the report focuses on the FX market, its findings may be of broader relevance to all market participants and other actors, including central banks,.
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Algorithmic trading: trends and existing regulation
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[PDF] Exchange Rate Regimes: Fix or Float
A country's exchange rate regime governs its exchange rate—that is, how much its own currency is worth in terms of the currencies of other countries.
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[PDF] Managed floating: Understanding the new international monetary ...
“There is nothing in existing theory, for example, that prevents a country from pursuing a managed float in which half of every fluctuation in demand for its ...
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Does inflation targeting help or hurt? - ScienceDirect
This suggests that exchange rate volatility under IT countries with “managed” regimes tend to be lower than those with flexible regimes.
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[PDF] MANAGING THE MANAGED FLOAT - International Economics Section
In a paper prepared in April 1974 (Ethier and Bloomfield, 1974), the authors of this essay investigated the general problem of managed float- ing, and in ...<|separator|>
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The Case for a Managed Float under Inflation Targeting
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[PDF] NBER WORKING PAPER SERIES INTERNATIONAL RESERVES ...
These changes were triggered by the recognition that even the “Asian Tigers” were not immune to sudden stops of short-term capital flows. 1. Countries averse ...
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[PDF] Evolution and Performance of Exchange Rate Regimes
Exchange rate volatility is considerably higher under managed floating and freely floating regimes than under pegged and limited flexibility regimes. This ...
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When Foreign Exchange Intervention Can Best Help Countries Navigate Shocks
### Role of Foreign Exchange Reserves in Interventions Under Managed Float
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[PDF] Official Intervention in the Foreign Exchange Market
8 The lack of credibility may also increase the likelihood of speculative attacks against the central bank (Sarno and Taylor, 2001). For instance, when the ...
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IMF Survey: Assessing the Need for Foreign Currency Reserves
Apr 7, 2011 · The empirical analysis in the paper suggests that 3 months of imports remains broadly appropriate for countries with flexible exchange rates, ...
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Quantifying Exchange Rate Passthrough to Inflation in - IMF eLibrary
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[PDF] NBER WORKING PAPER SERIES SUDDEN STOPS, THE REAL ...
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[PDF] Exchange rate regimes for emerging market economies
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Choosing an Exchange Rate Regime
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The Mirage of Fixed Exchange Rates
This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets.
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Annual Report on Exchange Arrangements and Exchange Restrictions
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China's Evolving Exchange Rate Regime
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A Managed Floating Exchange Rate Regime is an Established Policy
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India: Staff Report for the 2024 Article IV Consultation—Informational ...
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What is MAS' monetary policy framework and its rationale?
MAS' intermediate target of monetary policy is the Singapore Dollar Nominal Effective Exchange Rate (S$NEER), which is a trade-weighted basket of currencies.
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[PDF] Foreign exchange market developments and intervention in Korea
It also explains why the Korean won has been so volatile during the crisis period, and how the Korean authorities have addressed the vulnerability of the won ...Missing: post- | Show results with:post-
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[PDF] Becoming a High-Income Economy in a Generation - The World Bank
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[PDF] India: 2013 Article IV consultation--Staff Report; IMF Country Report ...
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GDP growth (annual %) - India - World Bank Open Data
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[PDF] Singapore's Exchange Rate Policy
Second, the MAS operates a managed float regime for the Singapore dollar. The trade-weighted exchange rate is allowed to fluctuate within an undisclosed.
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[PDF] An exchange-rate-centred monetary policy system: Singapore's ...
Second, MAS operates a managed float regime for the Singapore dollar. The trade-weighted exchange rate is allowed to fluctuate within a policy band, which ...
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[PDF] Russian Federation: 2015 Article IV Consultation--Press Release
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[PDF] Statement by Bank of Russia Governor Elvira Nabiullina at the State ...
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Chapter 7 Brazil: Taking Stock of the Past Couple of Decades in
Feb 28, 2019 · From 1994 to 1999, the exchange rate regime in Brazil converged to a crawling peg after initial attempts with free floating. Indeed, the early ...
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[PDF] Brazilian Strategy for Managing the Risk of Foreign Exchange Rate ...
Simulation of Risk Management Strategies. Brazil has had a floating foreign exchange rate regime since January 1999, although the central bank has intervened ...
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[PDF] Navigating the 2022 Inflation Surge: A Comparative Analysis of IT ...
... regimes allowed the exchange rate to absorb more of the shock. 12 A caveat is that exchange rate flexibility is best assessed relative to the equilibrium ...