Advantages And Disadvantages Of Fixed Exchange Rate In The Future Of Iran

dollar was close to an eight year shortage against the real, having lost more than 33% of its value during 2009 alone. During the past 12 month era, the exchange rate of the U.S. dollar (USD) has diverse from a low of BRL R $1.5310 to in height of BRL $1.7790. During 2010, the United States dollar typically kept an everyday exchange rate between (BRL) R$1.70 and (BRL) R$1.80, occasionally reducing below the (BRL) R$1.70 level.

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

Changes in exchange rates are the result of changes in demand and supply factors for goods and services, such as changes in tastes, relative incomes, and relative prices. Under a flexible-rate policy, all domestic prices are linked with foreign prices. Any change in the exchange rate automatically alters the prices of all foreign goods to domestic goods. The price change alters the relative attractiveness of imports and exports and maintains equilibrium in each trading partner's balance of

The United States should pursue and implement policies that are export oriented and keep the dollar relatively undervalued. Right now, there is much controversy over whether or not the U.S. should pursue a strong or weak dollar. It is important to note this controversy because exchange-rate policies are fueled by interest groups who are seeking to advance their economic statuses. An exchange rate is the price of one currency in comparison to another, and are determined by supply and demand. The determination of how much a dollar can appreciate or depreciate is political decision set forth by government. However, government is vulnerable and accountable to the competing pressures of interest groups. Ultimately, the opposing groups have different policies that will advance their economic gain, these policies are directly contradictory and are dependent on the value of the dollar.

As time progresses, the value of the dollar will decline. As a result, its value as a store of value will also depreciate making more countries to resort to another currency that might have such a value. Currently, the currency that has such a value is the Euro instead. More likely, most nations will result in the world governments going for the Euro as a form of reserve value (Crotty, 2012).

The Bank of England could purchase pounds by selling dollars in order to shift the demand curve for pounds and the Fed could shift the demand curve by buying the pounds. If the British choose to purchase more of U.S. goods and services, the supply curve for pounds increases, and the equilibrium exchange rate for the pound (in terms of dollars) falls to, say, $3. Under the terms of the Bretton Woods Agreement, Britain and the United States would be required to intervene in the market to bring the exchange rate back to the rate fixed in the agreement, $4. The fixed exchange rate systems offer the advantage of predictable currency values—when they are working. In order for the fixed exchange rates to work, the countries participating in them must maintain domestic economic conditions that will keep equilibrium currency values close to the fixed rates.

Such a process can be very time consuming and imprecise, without, of course, having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.

Iran, known as Persia until 1935, became an Islamic republic in 1979 after the ruling shah was driven out by a widespread revolution. Also known as the Islamic Republic of Iran, it borders the Gulf of Oman, the Persian Gulf, the Caspian Sea, and is located between Iraq and Pakistan. It also shares borders with Afghanistan, Armenia, Azerbaijan, Turkey, and Turkmenistan. Iran is roughly 1,648,195 square feet, the eighteenth largest country in the world with a population size of 82,801,633. It is governed as a theocratic republic, which is their legal system based on Islamic law. The judiciary system of Iran follows some aspects of Sharia law, but is also mixed with civil law that is authorized and overseen by Parliament. Alongside Parliament is their president, Hassan Ruhani, who has held office since August 2013, however; the Supreme Leader, Ayatollah Ali Khamenei, is at the very top of Iran’s configuration of power. Khamenei controls Iran’s domestic and foreign policies, serves as commander in chief of their armed forces, and directs the republic’s intelligence and security operations. Iran’s economy is characterized by its reliance on oil and gasoline exports. Their Gross National Income is 1.209 trillion per capita (PPP). Petroleum, natural gas, coal, chromium, and copper are some of their largest natural resources and their biggest export is petroleum (80%) to China, India, Turkey, and Japan. Industrial supplies, capital goods, and technical services from the UAE, China,

In the last century 70’s, during the debate regarding economic industry, Freedman who is a simple proof of the hypothesis of the trade-off between inflation and unemployment is only a temporary phenomenon, the first. In addition, he believes that, in the long run, there is no such trade-off. Friedman correlation analysis on inflation and unemployment is his pioneering work in international economics. In a 1950 paper, Freedman is an advocate of free-floating exchange rate. This article written in a Bretton Woods Agreement, and the subsequent creation of the International Monetary Fund and its fixed exchange rate, the World Bank, is the prevailing wisdom. Freedman's analysis of how to exercise, a flexible exchange rate will improve the balance of payments is a pioneering adjust the real. He critically tears parameters, a flexible exchange rate would encourage instability and his position is about 20 years later, when the world moved to a flexible exchange rate system.

In the example provided, Iran has pegged its currency to the stable [hard currency] US dollar through its Foreign Exchange Fund. However, the Iranian Central Bank insisted on ciphering off hard currency to fund local projects. Continued reduction of Iran 's hard currency level after pegging it currency to the US dollar could certainly impact liquidity.

First, the fixed nominal exchange rate has lost its real economic significance, the current RMB exchange rate formation mechanism is difficult to form market-clearing equilibrium rate. Practice, exchange settlement and capital management system in suppressing demand for foreign exchange at the same time creating a large part of foreign exchange supply, the central bank continued to intervene and the fact that the position of the largest market makers, erase all the differences between actual supply and demand. The central bank 's benchmark rate to determine the true market supply and demand balance is not the result can not reflect the market changes.

dollar. In dollarization, the country abolishes its own currency and uses a foreign currency, such as the U.S. dollar, for all domestic transactions. 6. Emerging market exchange rate regimes. High capital mobility is forcing emerging market nations to choose between free-floating regimes and currency board or dollarization regimes. What are the main outcomes of each of these regimes from the perspective of emerging market nations? There is no doubt that for many emerging markets a currency board, dollarization, and freely-floating exchange rate regimes are all extremes. In fact, many experts feel that the global financial marketplace will drive more and more emerging market nations towards one of these extremes. As illustrated by Exhibit 2.5, there is a distinct lack of “middle ground” left between rigidly fixed and freely floating. In anecdotal support of this argument, a poll of the general population in Mexico in 1999 indicated that 9 out of 10 people would prefer dollarization over a floating-rate peso. Clearly, there are many in the emerging markets of the world who have little faith in their leadership and institutions to implement an effective exchange rate policy.

A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.

One of the key factor to manage the inflation rate effectively is through monetary policy. Currency stability allow investors to develop long term strategy and minimize exchange rate risk. As Monetary Authority of Singapore(2014) states that adopting the management of exchange rate as it is ideal in terms of the small economy of singapore where it is easier to manage through direct intervention within the foreign market. It is seen as an effective mitigation to curb the high inflation rate for singapore economy

The middle system between fully fixed rates of exchange and the free floating rate of exchange