Exchange rate regime characterizes the procedure for establishing exchange rates between currencies.

There are two opposing systems for organizing exchange rates: a regime of rigidly fixed exchange rates and a regime of freely floating exchange rates. There are also options that combine individual elements of fixed and floating rates in various combinations.

Under fixed rate mode the central bank sets the exchange rate of the national currency at a certain level in relation to the currency of any country to which the currency of this country is “tied”, to the currency basket (usually it includes the currencies of the main trade and economic partners) or to the international monetary unit. The peculiarity of a fixed exchange rate is that it remains unchanged for a more or less long time (several years or several months), i.e. does not depend on changes in supply and demand for currency. A change in the fixed exchange rate occurs as a result of its official revision (devaluation - decrease or revaluation - increase).

The main way to maintain a fixed exchange rate is Central Bank currency intervention – purchase or sale of foreign currency on a foreign exchange exchange to maintain the exchange rate of the national currency. The volume of foreign exchange intervention is determined by the balance of payments and accumulated gold and foreign exchange reserves.

With a prolonged balance of payments deficit caused by the loss of the country's competitiveness in the world market, reserve assets are reduced to a critical point. It becomes impossible to correct the negative balance of payments through interventions. In this case, the central bank announces devaluation of its currency , which means an official depreciation of the national currency in relation to foreign currencies or international means of payment. The objective basis of devaluation is the overestimation of the official exchange rate compared to the real purchasing power of money. If the country's balance of payments remains in positive balance for a long time, then the central bank may decide to revaluate - increase the exchange rate of the national currency in relation to foreign ones.

With a fixed exchange rate, the central bank often sets different rates for individual transactions - a multiple exchange rate regime. Fixed exchange rate regimes are usually established in countries with strict foreign exchange restrictions and non-convertible currencies. At the present stage, it is used mainly by developing countries.

Floating exchange rates depend on market supply and demand for currency and can fluctuate significantly in size. Under a system of freely floating (flexible) exchange rates, central banks do not interfere in the functioning of the foreign exchange market and do not intervene.

A floating or fluctuating exchange rate regime is typical for countries where there are no or insignificant currency restrictions. Under this regime, the exchange rate changes relatively freely under the influence of supply and demand for the currency.

To intermediate between fixed and floating options for the exchange rate regime include:

The “rolling fixation” mode, in which the central bank sets the exchange rate daily based on certain indicators: the level of inflation, the state of the balance of payments, changes in the value of official gold and foreign exchange reserves, etc.;

A “currency corridor” regime in which the central bank sets upper and lower limits for exchange rate fluctuations. The “currency corridor” mode is called both the “soft fixation” mode (if narrow fluctuation limits are set) and the “controlled floating” mode (if the corridor is wide enough). The wider the “corridor”, the more the exchange rate movement corresponds to the real relationship between market demand and supply for currency;

A regime of “joint” or “collective floating” of currencies, in which the exchange rates of countries that are members of a currency group maintain the rates of their currencies relative to each other within the “currency corridor” and “float together” around currencies not included in the group.

Fixed and floating rates have their advantages and disadvantages.

Table 10.1 - Advantages and disadvantages of fixed and floating exchange rates

Fixed exchange rate regime
Advantages	Flaws
1. Reliability of forecasts, predictability and certainty	1. The impossibility of pursuing an independent monetary policy;
2. Is an anchor for inflation - an instrument of anti-inflationary policy	2.Susceptibility of fixed-rate currencies to speculative attacks
3. Is a guideline for the development of other macroeconomic indicators in stabilization programs.	3. It is not an indicator of the economic situation in the country. High probability of erroneous determination of the exchange rate level
	4. Foreign exchange reserves may be depleted as a result of maintaining the exchange rate
Floating exchange rate regime
1. Possibility of pursuing an independent monetary policy	1. Exchange rate instability does not make it possible to make long-term calculations on foreign trade and enterprise profits
2.Is an automatic stabilizer of the balance of payments; does not require large foreign exchange reserves	2. The uncertainty of a floating exchange rate leads to increased risks for foreign investment in the economy
3. Is an indicator of the economic situation. Changes in the exchange rate reflect the real state of the economy.	3. Higher inflation is possible compared to fixed exchange rate regimes.

If a floating exchange rate regime is chosen, the foreign exchange market is independently balanced by the mechanism of interaction between demand and supply of currency. When a choice is made in favor of a fixed exchange rate, we are not talking about an independent, independent establishment of exchange rates for the national currency, but means linking the exchange rate of the national currency to the currency of a country or a basket of currencies of several countries. Thus, in the case of a fixed exchange rate, equilibrium in the foreign exchange market is established through indirect economic policy measures.

The reason for currency fixation is related to the desire for stability. These days, some countries decide to fix their currency in order to create a favorable atmosphere for the influx of foreign investment. Thanks to the fixed exchange rate of the currency of a certain country, the investor will always be confident in the specific value of his investment and will not worry about daily exchange rate fluctuations due to the lack of them. Also, a fixed exchange rate can be successfully used as an instrument of anti-inflationary policy. Setting a nominal anchor ties the domestic inflation rate to the rate of growth in the prices of traded goods and thus helps bring inflation under control. This is especially important for a small open economy that depends on the volume of exports and imports.

However, a fixed exchange rate also has negative aspects. The first of them is the actual loss of independence in terms of monetary policy by a country that has established a fixed exchange rate of its currency in relation to a foreign one. All actions of the central bank are aimed only at maintaining the announced level of the exchange rate.

The second problem associated with maintaining a fixed exchange rate regime is its susceptibility to speculative attacks. The obligation of central banks to buy and sell currencies at a fixed rate means for speculators minimal risks in the event of an unsuccessful attack and large profits in the event of a change in the rate in the direction of the attack, that is, the asymmetric nature of the games takes place.

The third problem of the fixed exchange rate system is the high probability of erroneous establishment of the exchange rate level. As a result, large foreign exchange reserves are required to carry out foreign exchange interventions. Possible depletion of foreign exchange reserves as a result of maintaining the exchange rate

A floating exchange rate has a number of other obvious advantages. First, the country gains greater freedom in choosing its national economic policy, since floating exchange rates weaken the external constraint.

Secondly, currency speculation was curbed, since with floating exchange rates it takes on the character of a zero-sum game: some lose what others gain.

Thirdly, a favorable environment for the development of international trade arises, since the system of floating exchange rates reduces the interference of political factors in international trade relations.

Fourthly, the foreign exchange market determines the exchange rate ratio of currencies more effectively than the state.

At the same time, the uncertainty of a floating exchange rate leads to increased risks for foreign investment in the economy, which reduces the volume of foreign trade and foreign investment. Uncertainty increases for domestic producers and investors: changes in exchange rates can quickly and dramatically change the profitability potential of industries that produce export products as well as products that compete with imports. There may also be greater instability overall and higher inflation compared to fixed exchange rate regimes.

The conditions under which a particular exchange rate regime is effective are presented in Table 11.2.

Table 10.2 - Effectiveness of fixed and floating exchange rates

Fixed rate	Floating rate
1. Effective with significant foreign exchange reserves of the Central Bank	1. Effective in stable economies with multilateral foreign trade relations
2. Effective as an “anchor” for inflation	2. Ineffective in conditions of hyperinflation
3. Ineffective during a balance of payments crisis	3.Effective in resolving balance of payments crisis
4. In a fixed exchange rate regime, the effectiveness of fiscal policy is higher than monetary policy, since the entire “effect” from changes in the money supply “goes” to maintain the exchange rate and does not affect the levels of employment and output	4. In a floating exchange rate regime, the effectiveness of monetary policy is higher than fiscal policy, since exchange rate fluctuations can enhance the crowding out effect and inflationary pressure that accompany fiscal expansion

Most developed countries have abandoned the fixed exchange rate regime. The currencies of the USA, Canada, Great Britain, Japan, Switzerland and a number of other countries are in “free float”. However, often the central banks of these countries support exchange rates when they fluctuate sharply. This is why they talk about “managed” or “dirty” floating of exchange rates.

Exchange rate concept

To ensure the implementation of trade and financial transactions between countries, a certain ratio is established between their national monetary units. The monetary unit of a country is called the national currency. The relationship between national currencies is called the exchange rate. An exchange rate is the price of one country's national currency expressed in another country's national currency. (For example, 1 pound = 2 dollars, which means the price of 1 pound is equal to 2 dollars).

There are two types of exchange rates: 1) motto, which shows how many units of foreign currency can be obtained for one unit of domestic currency, i.e. this is the price of the domestic currency expressed in units of foreign currency (this is the so-called direct quotation, which exists, for example, in the UK); 2) exchange rate, which is the reciprocal of the exchange rate and which shows how many units of domestic currency can be obtained in exchange for a unit of foreign currency, i.e. this is the price of a unit of foreign currency expressed in units of domestic currency (the so-called inverse quotation, used in the United States, Russia and most European countries). Thus, the ratio of 1 pound = 2 dollars is the exchange rate for the UK and the exchange rate for the USA.

(In our analysis, by exchange rate we will understand the exchange rate, i.e. direct quotation of currencies).

The exchange rate is set depending on the relationship between the demand for the national currency and the supply of the national currency on the Forex currency market (foreign exchange market) and is graphically presented in Fig. 14-1(a), where e is the exchange rate of the pound, i.e. the price of 1 pound, expressed in dollars, D is the demand curve for pounds, S is the supply curve for pounds. The demand curve for currency (for pounds) has a negative slope, since the higher the exchange rate of the pound, i.e. The higher the price of a pound in dollars, the more dollars Americans must pay to get 1 pound in exchange, therefore, the less demand for pounds from Americans will be. The supply curve for a currency (pounds) has a positive slope, since the higher the exchange rate of the pound, the more dollars the British will receive in exchange for 1 pound, and therefore the higher the supply of pounds will be. The equilibrium exchange rate e0 is established at the point of intersection of the demand curve for pounds and the supply curve for pounds.

The demand for the national currency (pound) is determined by:

1) the demand of other countries for goods produced in a given country (in the UK) and 2) the demand of other countries for financial assets (stocks and bonds) of a given country (the UK), since in order to pay for this purchase of goods and financial assets, foreign States (eg the US) must exchange their currency (the dollar) for the currency of the country they are buying from (the pound).

Therefore, the demand for the national currency (pound) will be higher, the greater the desire of foreigners (for example, Americans) to buy goods produced in a given country (Great Britain) (i.e., the greater the export of British goods) and to acquire its financial assets (exports (?) capital). An increase in demand for currency (a shift to the right of the demand curve for pounds from D1 to D2 in Fig. 20.1.(b)) leads to an increase in its “price”, i.e. exchange rate (from e1 to e2). A rising exchange rate means that foreigners (Americans) must exchange (pay) more units of their currency (dollars) for a unit of that country's currency (pounds). If we initially assumed that the exchange rate of the pound was equal to 2 dollars per 1 pound, then its increase means that the ratio of currencies has become, for example, 2.5 dollars per 1 pound.

The supply of the national currency (pound) is determined by:

1) the demand of a given country (Great Britain) for goods produced in other countries (USA), i.e. for imported goods,

2) the demand of a given country for the financial assets of other countries, since in order to pay for the purchase by a given country (Great Britain) of goods and financial assets of other countries (USA), it must exchange its national currency (pounds) for the national currency of the country that has she buys (i.e. with dollars).

The supply of national currency (pounds) will be greater, the greater the desire of a given country (Great Britain) to buy goods and financial assets of other countries (USA). An increase in the supply of the national currency (pounds) (a shift to the right of the supply curve for pounds from S1 to S2 in Fig. 20.1.(c)) reduces its exchange rate (from e1 to e2). Decrease in exchange rate, i.e. the price of a national currency means that for 1 unit of national currency (pound) you can get in exchange a smaller amount of foreign currency (dollars), for example, not 2 dollars for 1 pound, but only 1.5 dollars for 1 pound.

Exchange rate regimes

There are 2 exchange rate regimes: fixed and floating.

Fixed exchange rate. Under a fixed exchange rate regime, the exchange rate is set by the central bank in a certain rigid ratio, for example, 2 dollars per 1 pound and is maintained through central bank interventions. Central bank interventions are operations for the purchase and sale of foreign currency in exchange for national currency in order to maintain the exchange rate of the national currency at a constant level. So, if the demand for the national currency grows, then its exchange rate rises from e1 to e2 (Fig. 16-1(b)). Meanwhile, the central bank must maintain a fixed exchange rate at e1. Therefore, in order to depreciate the exchange rate and return it from the level of e2 to the level of e1, the central bank must intervene (intervene) and increase the supply of pounds by buying dollars (i.e., placing a demand for dollars).

As a result, the supply curve for pounds will shift to the right from S1 to S2 and the original exchange rate of the pound e1 will be restored. If the supply of the national currency increases (Fig. 20.1.(c)) as a result of an increase in demand for imported goods and foreign financial assets, then the exchange rate of the national currency (pound) decreases (from e1 to e2), then the central bank, which undertakes to maintain a fixed exchange rate at level e1, carries out intervention to increase the exchange rate. In this case, he must reduce the supply of national currency (a leftward shift in the supply curve for pounds from S2 to S1), presenting a demand for foreign currency (dollar), i.e. by exchanging the national currency (pound) for it. Central bank interventions are based on operations with foreign exchange reserves (the foreign exchange reserve account is an integral part of the balance of payments under a fixed exchange rate regime).

Central bank interventions are linked to the balance of payments position.

If the exchange rate of the national currency rises, then foreign exchange reserves increase. The fact is that the exchange rate increases if the demand for goods of a given country increases, i.e. exports increase, which leads to an influx of foreign exchange into the country and a positive current account balance and if the demand for financial assets of a given country increases, which leads to capital inflows and a positive capital account balance. This causes a balance of payments surplus. To lower the exchange rate, the central bank increases the supply of domestic currency by buying foreign currency. As a result, foreign exchange reserves are replenished.

Conversely, a depreciation of a national currency occurs when a given country increases its demand for imported goods and foreign financial assets. As a result of increased imports, a current account deficit appears, and due to increased demand for foreign financial assets, capital outflows occur, and the capital account balance also becomes negative. A balance of payments deficit arises. To finance this deficit and appreciate the national currency, the central bank reduces the supply of the national currency, i.e. buys it by selling foreign currency. As a result, the central bank's foreign exchange reserves are reduced.

Thus, under a regime of fixed exchange rates, the balance of payments equation (BP – balance of payments) has the form:

BP = Xn + CF - ΔR = 0

where Xn is the current account balance, CF is the capital account balance, ΔR is the change in the value of foreign exchange reserves. If the sum of the balance of the current account and the capital account is a positive value, i.e. If there is a surplus in the balance of payments, then foreign exchange reserves increase, and if there is a negative balance, which corresponds to a deficit in the balance of payments, then foreign exchange reserves decrease. The balance of payments is balanced by changing the value of foreign exchange reserves by the central bank, i.e. through central bank intervention(s).

Under a regime of fixed exchange rates, both a chronic surplus in the balance of payments and a chronic deficit are dangerous. With a chronic surplus in the balance of payments, there is a possibility of overaccumulation of official reserves, which is fraught with inflation (since the central bank, in order to maintain a fixed exchange rate in conditions of its growth with a surplus in the balance of payments, will be forced to constantly increase the supply of money, i.e., the national currency). With a chronic surplus in the balance of payments, there is a threat of complete depletion of official reserves (since the central bank, in order to maintain a fixed exchange rate in the face of its decline in the presence of a deficit in the balance of payments, will be forced to constantly increase the supply of foreign currency, and its reserves are gradually depleted). This leads to the fact that, fearing either inflation or depletion of foreign exchange reserves, the central bank may be forced to officially change the exchange rate of the national currency, i.e. its price (value) relative to other currencies. The official increase in the exchange rate of a national currency by the central bank under a fixed exchange rate regime is called revaluation (revaluation, i.e. increase in value).

The official reduction in the exchange rate of a national currency by the central bank under a fixed exchange rate regime is called devaluation, i.e., reduction in value.

The fixed exchange rate system was developed and adopted in 1944 in the American city of Bratton Woods and was therefore called the Bratton Woods currency system. According to this system:

The US dollar has become the reserve currency for international payments.

The US Treasury was obliged to exchange dollars for gold upon first presentation in the ratio of 35 dollars per 1 troy ounce (31.1 grams) of gold

All national currencies were rigidly (in a certain fixed ratio) “pegged” to the dollar and, through the dollar, to gold.

The American dollar replaced gold in international payments, since at that time the United States was the richest country in the world. They provided 57% of the industrial production of the capitalist world, 30% of world exports and concentrated 75% of the gold reserves of capitalist countries.

The national currency of the United States, the dollar, was the most stable and enjoyed the greatest confidence. However, gradually the balance of power in the world changed. An “economic miracle” occurred in Japan and Germany; the growth rate of their industrial production began to outpace the growth rate of the American economy. In 1954, the European Economic Community (EEC or “Common Market”) arose, which initially included 6 countries (Germany, France, Italy, Belgium, the Netherlands and Luxembourg), and now includes almost all countries of Western Europe. The competitiveness of American goods has fallen. Countries that had accumulated a large number of dollars (green bills), which Americans used to pay for the real assets (goods and services) they purchased, began to present dollars to the US Treasury for exchange for gold. US gold reserves began to rapidly melt. The United States was forced to announce the end of the exchange of dollars for gold, and in 1969 and 1971 to devalue the dollar, i.e. reduce the exchange rate of the dollar relative to other currencies. Even earlier, in 1967, due to the economic difficulties that Great Britain experienced in the period after World War II, the central bank of this country (Bank of England) was forced to announce the devaluation (i.e., decrease in the exchange rate) of the pound against the dollar. Germany, in 1969, revalued (i.e. increased the exchange rate) the mark against the dollar. The crisis of the Bratton Woods system of fixed exchange rates began. On March 19, 1973, a system of flexible exchange rates was introduced.

Flexible exchange rate. The system of flexible (flexible) or floating (floating) exchange rates assumes that exchange rates are regulated by the market mechanism and are established according to the relationship between demand and supply of currency in the foreign exchange market. Therefore, balancing of the balance of payments occurs without the intervention(s) of the central bank and is carried out through the inflow or outflow of capital. The balance of payments equation is:

BP = Xn + CF = 0

If there is a balance of payments deficit, it is financed by capital inflows into the country. The fact is that a balance of payments deficit means that the demand for goods and financial assets of a given country is less than the demand of a given country for goods and financial assets of other countries. This leads to a decrease in the exchange rate of the national currency as its supply increases (citizens of a given country offer the national currency in exchange for foreign currency in order to buy foreign goods and financial assets).

A decrease in the exchange rate under a floating exchange rate regime is called currency depreciation. Currency depreciation makes national goods cheaper and favors the export of goods and capital inflows, since foreigners can receive more of a given country's currency in exchange for a unit of their currency.

If there is a balance of payments surplus, it is financed by capital outflows. A surplus means that a country's goods and financial assets are in greater demand than foreign goods and financial assets. This increases the demand for the national currency and increases its exchange rate. An increase in the exchange rate under a floating exchange rate regime is called currency appreciation (appreciation). An appreciating currency means that foreigners must exchange more of their own currency to obtain a unit of that country's currency. This makes national goods more expensive and reduces exports, stimulating imports, i.e. increased demand for imported goods and foreign securities, since more of them can now be purchased. As a result, the exchange rate of the national currency decreases.

However, the modern monetary system is not a system of completely flexible exchange rates, since the US Federal Reserve and a consortium of European banks do not allow the dollar to fluctuate absolutely freely in order to prevent it from falling sharply (as in 1985), i.e. The US Federal Reserve, as it were, artificially props up the dollar, buying it and artificially increasing the demand for the dollar and maintaining its higher exchange rate. If the central bank does not interfere in setting the exchange rate, then this is a “clean floating” system. If the central bank intervenes, then this is “dirty” or “managed floating”. The current monetary system is a dirty float system because European central banks fear a collapse of the dollar, which would make American exports more competitive and reduce American demand for European and Japanese goods. This could lead to bankruptcies and business closures in other countries and increased unemployment.

Depending on the degree of freedom to change exchange rates, all currencies of the world are divided into currencies with a fixed rate, currencies with a limited flexible rate and currencies with a floating rate.

Fixed exchange rate- this is an officially established ratio between national currencies, allowing a deviation of no more than 2.25% in one direction or another.

Fixation methods:

1) Fixation of the exchange rate to one currency, the most significant in international payments.

2) Currency management is the fixing of the exchange rate of the national currency to a foreign one, and the issue of the national currency is fully provided by reserves of foreign currency.

3) Fixation to the currency composite. This is a linking of the national currency exchange rate to various baskets of currencies of countries - main trading partners.

4) Using the currencies of other countries as legal tender.

Limited flexible exchange rate- this is an officially established relationship between national currencies, allowing temporary deviations within

Floating exchange rate- this is a rate that changes freely under the influence of supply and demand, which the state can, under certain conditions, influence through foreign exchange interventions, including:

A) Managed floating rate:

This is the rate officially set by the Central Bank, taking into account the relationship between supply and demand in the foreign exchange market and with the active participation of the Central Bank in rate setting.

b) Free, independently floating exchange rate:

The exchange rate is determined on the foreign exchange market based on the relationship between supply and demand for currency, with the state not interfering in this process.

V) Adjusted exchange rate:

A rate that automatically changes in accordance with changes in certain economic indicators.

3. EMS.

In 1979, the EMU was created on the basis of the ECU.

The ECU is a conventional monetary unit, the value of which is determined using the currency basket method, which includes the currencies of all EU countries.

The issue of ECU as reserve assets of the European Monetary System is partly based on gold, for this purpose a joint gold fund was created by pooling 20% ​​of the gold reserves of all EU countries. The exchange rate regime is based on the joint floating of currencies within established limits of mutual fluctuations.

In 1987, the gradual formation of a monetary and economic union began:

1) Started in July 1990:

There was a complete abolition of currency restrictions on the movement of capital in the EU.

Creation of the European Monetary Institute (EMI) as part of the governing central banks of the participating countries. The idea of ​​a common currency "euro" instead of the ECU appears.

Transformation of the EMI into the European Central Bank and replacement of the ECU with the “euro”.

To join the Monetary Economic Union, you must meet the following criteria:

· Price stability

Inflation should not exceed by more than 1.5% the rate of price growth in countries with the lowest inflation rates.

· The state budget deficit should not be more than 3% of the value of GDP.

· The total government debt is no more than 60% of GDP.

· The nominal long-term interest rate cannot exceed the average rate of the three countries with the lowest inflation rates (no more than 20%).

Exchange rate.

1. Currency exchange indicators, currency quotation methods, buyer and seller rates, cross rates.

2. Nominal and real exchange rates. Purchasing power parity.

3. Dynamics of exchange rates. Factors determining the exchange rate.

4. Consequences of changes in exchange rates for the country. State regulation of the exchange rate.

1. Currency exchange indicators.

Exchange rate is the price of one country's currency expressed in another country's currency.

Direct quotation means that the exchange rate is expressed in foreign currency units:

1, 10, 100... units of foreign currency = x units of domestic currency.

1$ = 28.75 rub.

Reverse quotation means that the exchange rate is expressed in units of national currency:

1, 10, 100... units of domestic currency = x units of foreign currency.

1 lb tbsp. = 1.6$

Spread =

Factors influencing the spread:

Competition among dealers (the higher, the lower the spread)

Dealer costs

Risks of dealers working with different currencies.

Cross course is an expression of the exchange rate of two currencies to each other through the rate of each of them in relation to a third currency.

1 yen = 0.33 rub.

100 yen = 33 rubles.

2. Nominal and real exchange rates.

Nominal exchange rate is the current market price of the national currency.

Real exchange rate- this is the nominal exchange rate, recalculated taking into account changes in the price level in one’s own country and abroad.

,

rub/dollar

, i.e. up 9.6%

Thus:

Rub/dollar => the value of the ruble has increased.

An increase in this indicator ( means the depreciation of the national currency in relation to the foreign currency. This can happen:

a) as a result of its nominal impairment

b) due to rising prices of the consumer basket abroad

c) due to a decrease in the price of the national consumer basket.

Real depreciation means that the goods and services of a given country have become relatively cheaper, etc. their competitiveness increases.

A decrease in this indicator means an increase in the value of the national currency if these factors act in the opposite direction.

A real rise in price means that a given country's goods and services have become relatively more expensive and it is losing competitiveness.

Other methods of determination

1) The ratio of the price index of goods suitable for international exchange to the price index of goods that are not the object of international trade is multiplied by .

2) The ratio of labor costs per unit of production abroad to this indicator within the country is multiplied by

Nominal effective exchange rate shows the average dynamics of the movement of the national currency exchange rate in relation to more than one. and to several of the most important currencies for a given country.

It is calculated as the ratio between the national currency and the currencies of other countries, weighted in accordance with the share of these countries in the foreign exchange transactions of a given country.

Real effective exchange rate is the nominal effective exchange rate adjusted for changes in the price level.

In Russia, since 2005, it has been formed on the basis of the real exchange rate of the ruble to the currencies of 34 foreign trade partner countries.

Currently, to facilitate the task of the Central Bank to control the real effective exchange rate, an “operational benchmark” is used. This is a bi-currency basket consisting of 45% euros and 55% $.

Floating exchange rate – English Floating Exchange Rate, an exchange rate regime that involves the formation of the national currency exchange rate solely under the influence of market factors of supply and demand. In this case, the exchange rate will change depending on the actions of participants in the foreign exchange market, which lead to its growth or decline. The opposite of a floating exchange rate system is a fixed exchange rate regime, which involves pegging the national currency to one of the main world currencies, for example, the US dollar or the Euro.

The basis for establishing a floating exchange rate regime is the idea that such a system will be capable of self-adjustment. In theory, this should make the country's economy resistant to fluctuations in the exchange rate of the national currency. However, in practice this does not always happen. Although some countries use a floating exchange rate regime, the national currency can exhibit high volatility, which often has a strong impact on the national economic system. This is especially evident during a recession, when a significant depreciation of the national currency can lead to a serious decrease in the purchasing power of the population.

Under a truly independent floating exchange rate regime, the value of the national currency is determined solely as a result of the interaction of participants in the foreign exchange market, and is not set by government authorities. Their actions lead to a change in the relationship between supply and demand for the national currency, which, in turn, has a direct impact on the country’s economy and can lead to both its growth and recession or even depression.

Due to the above factors, many countries have established a managed floating exchange rate regime ( English Managed Floating Exchange Rate). In this case, the exchange rate of the national currency, although determined by supply and demand in the foreign exchange market, the government may, in some cases, carry out interventions. For example, if there is an excess supply of foreign currency in the foreign exchange market, which could lead to a strengthening of the national currency, the government can buy the excess and place it in gold and foreign exchange reserves. In the opposite situation, when there is a shortage of supply of foreign currency in the foreign exchange market, which leads to a weakening of the national currency, the government can satisfy demand by selling foreign currency from gold and foreign exchange reserves.

Governments tend to be cautious when it comes to managing the exchange rate of their national currency. Excessive intervention can lead to an exchange rate that does not reflect the relationship between supply and demand in the foreign exchange market. However, governments want to maintain control over the exchange rate if problems arise in the economy. Typically, governments regularly develop a set of measures aimed at maintaining the stability of the national currency. At the same time, it is common practice to involve qualified economists and political scientists as experts.

FLOATING EXCHANGE RATE

FLOATING EXCHANGE RATE

(floating exchange rate) An exchange rate that is set in conditions where neither the state nor the central bank takes any action to maintain its stability. This rate is also called the flexible exchange rate. A "pure" float means that neither the government nor the central bank intervenes in the foreign exchange market, and the exchange rate is set solely by the play of market forces. Unlike “clean” floating, “dirty” floating involves the intervention of the governing monetary institutions of one or both countries in the situation on the foreign exchange market, but these interventions are carried out at their discretion and are not systematic in nature, aimed at completely stabilizing the exchange rate.

Economy. Dictionary. - M.: "INFRA-M", Publishing House "Ves Mir". J. Black. General editor: Doctor of Economics Osadchaya I.M.. 2000 .

Economic dictionary. 2000 .

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