Exchange Rate Regime Since 1973

• In view of the collapse of the Bretton Woods system of exchange

rate, the Board of Governors of the IMF appointed Committee of
20 to suggest guidelines for evolving and exchange rate system
that could be acceptable to the member countries.
• The report suggest various options that were discussed at
Rambouillet in November 1975 and approved at the Jamaica
meet in January 1976.
Independent Floating (Clean Floating)
• A floating exchange rate is one that is determined by
supply and demand on the open market.
• A floating exchange rate doesn't mean countries don't try
to intervene and manipulate their currency's price, since
governments and central banks regularly attempt to keep
their currency price favorable for international trade.
Merits
• Exchange rates are automatically adjusted to changes in
macro-economic variables.
• Exchange rate is almost stable around the equilibrium in the
long run.
• Currency remains insulated from the shocks emanating
abroad.