Another Example Of The Managed Floating Exchange Rate System Is That Some

Another example of the Managed Floating Exchange Rate System is that some countries use explicit target values rather than implicit target values. A case in point includes the countries within the European Union. They were part of what was termed 'The Exchange Rate Mechanism'. The countries in the mechanism were allowed to fluctuate within a band of 2.25 per cent of the value. However, if the exchange rate fluctuated outside the band, the governments were allowed to buy or sell currency from their reserves in order to correct the problem. The Exchange Rate Mechanism was unsustainable, and the United Kingdom, under severe financial pressure, was forced to withdraw from the Exchange Rate Mechanism in 1992 (Stanlake & Grant, 2000, 527).
Conclusion:
In accordance with the above exchange rate systems described, it can be finally asserted that it is necessary for a central bank to intervene and use its currency reserves to support the value of its country's currency in the foreign exchange market. This is because there needs to be some supervision in order to ensure long-term stability of a country's currency value with regard to the foreign exchange market. This centralized means of intervention and supervision is important as it has the ability and authority to carefully oversee the currency value, and can take action in order to prevent a currency being devalued. Along with this, by a central bank using its currency reserves to support the value of its country's currency in the foreign exchange market, it has the authority to make sure that adverse reactions do not take place with regard to its currency value.
References:
Devereux, M. B. & Engel. C. Fixed vs. Floating Exchange Rates: How Price Setting Affects the Optimal Choice of Exchange-rate Regime. (University of Washington and NBER) April 1999. Discussion Paper No.: 99-13.
Fischer, S. 2001. Distinguished Lecture on Economics in Government: Exchange Rate Regimes: Is the Bipolar View Correct? Journal of Economic Perspectives, Vol. 15, No. 2 (Spring, 2001). 3-24
Hartmann, P. Currency Competition and Foreign Exchange Markets. The Dollar, the Yen and the Euro. European Central Bank, Frankfurt.
Mundell, R. A. 1963. Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates. Canadian Journal of Economics and Political Science, Vol. 29, No. 4 (Nov., 1963). 475-485.
Open Economies Review: Springer Netherlands. Volume 11, Number 4. October 2000. Pages: 303 - 321 The Euro as a Monetary Anchor in the CEECs
Portes, R., Rey, H., De Grauwe, P., & Honkapohja, S. 1998. The Emergence of the Euro as an International Currency. Economic Policy, Vol. 13, No. 26, EMU (Apr., 1998), 305-343.
Stanlake, G. F. & Grant, S. J. 2000. Introductory Economics, Longman, pp 527.
Weerapana, Akila. Spring Semester '03-'04. Lecture 5: Exchange Rate Systems. http://www.wellesley.edu/Economics/weerapana/econ213/econ213pdf/lect213-05.