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    Thread: Clean float and dirty float: what are the meaning?

    1. #11
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      Default Re: Clean float and dirty float: what are the meaning?

      Quote Originally Posted by forexguy9 View Post
      The terms clean float and dirty float what do they mean?
      Are clean floor also known as a pure exchange rate occurs when the value of currency or its exchange rate is determined purely by supply and the demand the floor is money in the banking system that is briefly counted twice due to delay in processing checks and can distort the money supply for the nation a dirty float is a floating exchange rate was a country's Central Bank occasionally enter when to change the direction or the pace of change of a country's currency value in most instances in the central bank is a dirty float system act as a buffer against and external acts economic shock before its effect become disruptive to the domestic economy that is also known as a managed float


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    3. #12
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      Default Re: Clean float and dirty float: what are the meaning?

      A clean float has happened when the government does nothing about the exchange rates but allows it to float freely, that is what the law of demand and supply comes into play, when it seem that things are not working according to the plan that is expected, the government then thinks about how to control the money in circulation, hence the need for a dirty float.

      With dirty floating system, the government becomes fully involved in the exchange rate that is happening, somehow, there are some people that wants to be making high profits from a fixed exchange rate, when the threat is sensed by the authorities, they will do everything to make sure the exchange rate is brought into a state that should be according to the expectations.


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      Default Re: Clean float and dirty float: what are the meaning?

      A dirty float does not happen most of the time because the currency and exchange rate is doing well and every other thing is working well, but when the government now makes an intervention into the market to distort the free flow of the exchange rate, we say that a dirty float has already taken place, there are countries where they have multiple exchanges rates, there is the official rate that is approved by the government by yet pockets of a handful of people can manipulate the price through the creation of artificial scarcity to ensure that the price goes up, when this happens, you cannot expect the authorities to seat back and do nothing, they will definitely respond to salvage the situation before it gets out of the limit that is controllable. Clean float is when there is no intervention.
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      Default Re: Clean float and dirty float: what are the meaning?

      If the forces of demand and supply are what determines the exchange rate, that means the government is operating under a clean float which is sometimes referred to as the flexibility currency float regime, this can be allowed to be so as long as there is no issue.

      When the clean float no longer becomes effective to deal with the present situation, the authorities especially the central bank can then step in the place of the government to make some enactment that will bring the economy back into balance. Both the dirty and clean float systems have advantages and disadvantages equally. A clean float is always preferable because there is more freedom for participants.


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    9. #15
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      Default Re: Clean float and dirty float: what are the meaning?

      In a managed floating regime which we also know to be dirty float, the government through its relevant agency ensures that the exchange rate gains stability because it is trying to keep the economy under check, if this is not done adequately, there are corrupt politicians that will take advantage of the circumstances to carry out money laundering, when the currency is allowed to float freely through the demand and supply mechanism, that is where we say that there is a clean float, in this case when there is high demand for the country's currency and the supplies is limited or fixed we can say that price will definitely increase, but when there is abundant supply of the currency and the demand that she very low, would expect that price will naturally drop.


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    11. #16
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      Default Re: Clean float and dirty float: what are the meaning?

      Quote Originally Posted by forexguy9 View Post
      The terms clean float and dirty float what do they mean?
      floating exchange rate systems in which value of a currency is determined entirely by the market forces of demand n' supply without any government interference. opposite of dirty float. also called pure exchange rate. a dirty float means the central bank steps in sometimes to keep its currency from falling too far or rising too much over a short period of time but it will still move to a rate near its free market value eventually.
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    13. #17
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      Default Re: Clean float and dirty float: what are the meaning?

      Before we discuss the core points, we must first understand the "Floating Exchange Rate System"

      What Is a Floating Exchange System?

      The floating exchange rate system is a foreign exchange system in which the exchange rate of a currency with another currency is allowed to be determined freely by the attraction of market forces. In this system the linkage of the price system between countries is formed, because the free exchange rate can be used as a guide in determining the value of the domestic currency expressed in gold.

      The interconnection of the interstate price system can be implemented if it meets the following conditions.
      • The currency used is not convertible or is not directly related to gold.
      • There are no restrictions on the use of foreign exchange.
      • Foreign exchange rates are determined by market forces.
      There are two types of floating exchange rate systems, namely:

      Clean Float

      Clean float system is the exchange rate system floats without government intervention. So that in this case the government is not trying to stabilize foreign exchange rates.

      Dirty Float


      Less pure floating exchange system (dirty float or managed floating exchange rate), is a floating exchange rate system where there is still government intervention that acts as a monetary authority through the market.

      In this case, the government is actively making efforts to stabilize foreign exchange rates.

      The use of a floating exchange rate system can shake one country that is experiencing a balance of payments deficit. However, on the other hand, it will benefit countries with a balance of payments surplus, because the increase in exports will also increase the exchange rate, whereas for countries with greater imports, they will reduce their exchange rates. To overcome this kind of thing, it is necessary to use a foreign exchange supervision system by the government concerned.

      This exchange control system has the following important characteristics.
      • Domestic currency is not convertible to gold.
      • Foreign exchange producers must submit all foreign exchange they have obtained to the government.
      • The foreign exchange allotment system is carried out thoroughly.
      • Foreign exchange rates are set by the government.


    14. #18
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      Default Re: Clean float and dirty float: what are the meaning?

      Clean float is a system that allows the exchange rate to float freely, this will happen more in an economy that is very strong which does not have much issue especially with rising inflation and other negative factors, it is only in economically developed countries that a clean float can be allowed to operate, if this takes place in a third world country, just be prepared for the different challenges that would accompany it.

      A dirty float happen when there is so much intervention from the government in the exchange rate determination, there is always a chance that some people would do something funny when a clean float is working fine, that is where a dirty float can come up occasionally.


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    16. #19
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      Default Re: Clean float and dirty float: what are the meaning?

      A clean and dirty floats are term used when it comes to exchange rate, A dirty float are situation in which exchange rates are partially determined by government intervention or restrictions to limit appreciation or depreciation of the country´s currency,
      while the clean float is the opposite of first float which means the situation where an exchange rate of a currency is simply determine purely on the supply and demand.
      in the situation of clean float the supply and demand in the foreign exchange market will determine the price, and also in dirt float, its not as if its not affected by the supply and demand but the government can decide to determine the rate.


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    18. #20
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      Default Re: Clean float and dirty float: what are the meaning?

      Clean float and dirty float are currency exchange rates systems terminology, in the clean floating system, the government has no intervention in what happens within the exchange rate of the currency, meaning it is allowed to float freely, but in the case of a dirty floating system, the currency experiences several intervention and interruption from the government because it wants to ensure that the economy does not go out of its control, the agency that is responsible for this exchange rate is the central banks which make sure that they have a monitoring mechanism to track down when there is need to intervene and put structures in place needed to exercise the necessary control as required per time.


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