Clean Float

Posted in Finance, Accounting and Economics Terms, Total Reads: 141
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Definition: Clean Float

Clean Float can be defined as an exchange rate system such that there is no intervention from government to set the price of the currency. The currency floats or the value of the currency is determined as per pure market forces of supply and demand.


This can happen only in a pure capitalistic economy where there is no government intervention and the value of the currency depends on market factors. There is always some sort of intervention by the government to try and control the value of the currency even in the Western Countries but Canadian Dollar is one of the cleanest currency out there. A negative side to clean float system and why many countries don’t let the currencies float freely is because currencies can slide majorly and then can change the entire economic outlook of a nation.


An example of this was the Yuan Deflation that happened in 2015. Chinese Central Bank shifted from the practice of keeping 2% margin up and below the market rate and let the market determine the exchange rate. When they started this the yuan started slipping, causing a crisis in the Chinese Economy as well as a global market scare. The central bank had to intervene to control the currency from sliding down.

 

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