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 is why it lets the interbank market operate smoothly in a manageable exchange rate band and then allows an occasional depreciation when dollar demand becomes impossible to handle on the back of shallow forex reserves.
At the start of January, Banco Nacional de Angola (BNA) announced that it would move from a de facto currency peg against the US dollar to a managed exchange rate band system.
Welcoming the removal of the exchange rate band, they highlighted that gradual steps towards greater exchange rate flexibility would strengthen the credibility of the inflation-targeting framework and protect against shocks.
We believe that rather than allowing depreciatory pressures to build up to the point where a significant devaluation is required, the central bank will engage in a series of shifts of the exchange rate band. We forecast the tenge to reach KZT210.00/USD by end 2015 and KZT222.00/USD by end 2016.
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.
For a majority of bankers, Rs98 to Rs99 per dollar is now an unofficial exchange rate band that they think the central bank would like to see in operation for the next few months.
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.
Monetary policy has in principle been conducted more freely since the removal of the exchange rate band in early 2008 allowed it to focus exclusively on the inflation target.
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.
At the time of the announcement that inflation targeting is to be implemented, the NBP was still maintaining an exchange rate band. This was widened gradually before allowing the zloty to float freely in April 2000.