Dirty Float

Dirty float

A system of floating exchange rates in which a government may intervene to change the direction of the value of the country's currency.

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Dirty Float

A floating exchange rate in which a government intervenes at some frequency to change the direction of the float by buying or selling currencies. Often, the local government makes this intervention, but this is not always the case. For example, in 1994, the U.S. government bought large quantities of Mexican pesos to stop the rapid loss of the peso's value.

Strictly speaking, even a central bank's intervention to raise or lower interest rates could be considered a dirty float. However, because most floating currencies manage their regimes with occasional central bank involvement, the term applies mainly to frequent or dramatic interventions. The dirty float is also known as a managed currency regime. See also: 1994 Mexican economic crisis, Floating currency, Fixed exchange rate.