A
floating exchange rate or fluctuating exchange rate is a type of
exchange-rate regime in which a currency's value is allowed to fluctuate
according to the foreign-exchange market. A currency that uses a
floating exchange rate is known as a floating currency. A floating
currency is contrasted with a fixed currency.
In
the modern world, most of the world's currencies are floating; such
currencies include the most widely traded currencies: the United States
dollar, the euro, the Norwegian krone, the Japanese yen, the British
pound, and the Australian dollar. The Swiss franc was formerly traded
via a floating exchange rate but as of September 2011, has its floor
pegged to the euro.
However,
central banks often participate in the markets to attempt to influence
the value of floating exchange rates. The Canadian dollar most closely
resembles a "pure" floating currency, because the Canadian central bank
has not interfered with its price since it officially stopped doing so
in 1998. The US dollar runs a close second, with very little change in
its foreign reserves; in contrast, Japan and the UK intervene to a
greater extent.
