Exchange Rate Bands

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Exchange Rate Bands

The range of exchange rates a central bank allows its currency to take. Exchange rate bands are used when one currency links its value to that of another currency but allows it to fluctuate within certain limits. Proponents maintain that exchange rate bands give a currency a certain level of flexibility so that it can respond to market factors while leaving control with the central bank. Critics contend that this system is inefficient and leads to unfair practices in international trade. The Chinese renmimbi is a prominent example of a currency that traditionally has existed within exchange rate bands. See also: Crawling peg.
References in periodicals archive ?
That said, the effect of a unified pension fund on the domestic bond market and the central bank's ability to support the economy, given its commitment to the exchange rate band, remain uncertain.
The decision to widen the exchange rate band has been made today and is expected to come into effect tomorrow.
But we do not have an exchange rate band," Subbarao told media in southern Chennai on Thursday, according to a statement.
In late July 2011, the Central Bank of Honduras (BCH) reactivated the exchange rate band system, a scheme under which the dollar fluctuates between two bands, established by the entity that has the power to buy dollars if the exchange change goes towards the lower band, and sell if it is located in the upper limit, in order to increase supply and push the exchange rate lower.
With this weak manufacturing print, the high likelihood of a technical recession, and falling core inflation, we think the conditions are right for the central bank to ease the pace of appreciation of its trade-weighted exchange rate band," Credit Suisse economist Michael Wan said in a note to client.
A desire to maintain an exchange rate band, as in Hungary, or not completely abandoning the targeting of monetary aggregates, as in Armenia, or both in the case of Romania, has slowed the public's understanding of the policy and perhaps limited the public's belief in the bank's commitment to price stability.
Increased flexibility might best be accomplished by a widening of the exchange rate band, possibly accompanied by a move to a currency basket,'' it said.
The recent widening of the exchange rate band is facilitating the necessary tightening of monetary conditions but needs to be supported by a tighter fiscal stance.
In addition, they are accelerating economic deregulation, holding down labor costs, and regularly adjusting the exchange rate band.
The central bank emphasized that the exchange rate band was intended to keep real exchange rates consistent with medium- and long-term external equilibrium and not to control inflation.
modified exchange rate band, which took effect January 2.
Virtually all Middle Eastern countries are either pegged to a currency such as the US dollar or trade tightly within an established exchange rate band.