1. The different forms of currency regimes and their impact on Essay

1. The different forms of currency regimes and their impact on economic activity - Essay Example The currency regime that a country adopts may have an effect on its economic growth; this is collaborated by the breakdown of Breton Woods’s countries, which adopted different types of regimes after the collapse of their union. The different types of regime that countries adopt have, largely affect their economic performance depending on their magnitude of their external trade or liberalization of their economy. Initially, there were two widely accepted currency regimes, which included floating and fixed exchange rates. However due to the dynamics in the international economic system and the desire of states to balance between independent monetary policy, rigidly fixed exchange rates and completely fixed capital mobility, several other monetary regimes have cropped up, these include float, dollarization, pegged float, currency boards and fixed currency regimes. In this paper, I am interested to study the different kinds of currency regimes and their impact on economic activity . In the next section, I will discuss the different forms of currency regimes and their use; in section three, I will analyse how these currency regimes have influenced economic activities of countries. This type of currency regime allows a currency’s value to fluctuate depending on the exchange rate market; in the current economic system, most of the currencies such as the United States dollar, the Japanese yen and the euro are floating currencies. However, in some instances, central banks of the respective countries enter the market in order to influence the exchange rates. The use of floating currency regime enables a country to be able to mitigate the effects of shocks in the international economic system (Miles, 2006, p91). Dollarization can be viewed as currency substitution where another country uses dollar as its only currency or alongside another currency. The United States dollar is the currency that is most used as a substitute