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However, once the floating rate system was implemented, there was a decrease in inflation and unemployment. This helped Chile to experience strong demand for imports and it kept whole sale / retail prices in check. One of the keys to their success was the fact that the central bank utilized flexibility when intervening in the Forex markets. This allowed the country to go through strong periods of stable economic growth and quickly adjust to new challenges in the global economy. (Gregio, 2004)
At the same time, the government must enact policies that will help to support responsible growth. This means that issues such as corruption, crime, inflation, the total amounts of government spending, interest rates and trade figures will influence the prevailing rates in the market. These factors can affect the confidence of traders, investors and ratings agencies. (Walker, 2002)
For example, Jamaica is utilizing a floating rate system. This has made the underlying economic situation worse for the nation over the last 15 years. The reason why is because government...
These practices have caused the value of their currency to decrease in contrast with other nations. Over the course of time, this has reduced the standard of living for ordinary people. This is showing how government officials must engage in practices that are financially prudent. If this can occur, all countries will experience balanced economic growth by directly addressing issues that could adversely impact the confidence of stakeholders. (Walker, 2002)
References
Gregio, J. (2004). Flexible Exchange Rate Regime. Chile Central Bank. Retrieved from: http://www.bcentral.cl/estudios/documentos-politica-economica/pdf/dpe11.pdf
Walker, a. (2002). The Microstructure of the Jamaican Foreign Exchange Market. Bank of Jamaica. Retrieved from: http://www.bankofjamaica.net/uploads/pdf/papers_pamphlets/papers_pamphlets_the_microstructure_of_the_jamaican_foreign_exchange_market__volumes__volatility_and_spreads.pdf
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