Advantages Of A Country's Currency Float On The Exchange Rates

Thus the rationale behind changing the nominal exchange rate under a fixed or pegged exchange rate system is easy to follow provided that the set rate is found to be far away from the optimal or equilibrium rate. However, why does the central bank need to manage exchange rates which are determined by market forces in case of independent floating? This remains a contentious issue. Essentially, the central bank is believed to determine the appropriate level (or path) of the nominal exchange rate and then intervene in foreign exchange markets to bring the actual exchange rate close to the appropriate level. In practical sense, the appropriate level of the exchange rate may represent the rate which, when translated into a real exchange rate, is consistent with the long-run equilibrium real exchange rate. Many economists of neoclassical persuasion believe that the market determined exchange rates broadly represent the long-run equilibrium exchange rates and there is no need for managing exchange rates or intervention in foreign exchange markets.

However, the core of realism theory, with its understanding of world politics remains the same – uncompromising struggle between states for power and influence, and not moral and legal principles that define the foreign policy of a state. One of the baselines for political realism is the clause of the anarchic nature of international relations. From this point of view, the anarchic nature of relations

Neo-realism, also known as structural realism or system level theory outlined in Theory of International Politics (1979) has been Kenneth Waltz’s response to the Realism theory by Hans Morgenthau (1948). The neo realist thinking of Waltz along with John Mearsheimer, Robert Keohane, Stephen Krasner, Charles Kindleberger and Robert Tucker George Modelski had a deep impact both within and beyond the realist tradition. Unlike classical realism, Neo realism does not consider human nature as relevant when it comes to the behaviour of states in international system rather explains it in terms of structure of the international system. As per neo realists, the international structure is predominately defined by their ordering principles (anarchy) and the distribution of capabilities (power) across units. In the neo realist theory, power is simply the combined capability of a state and changes in the structures can be explained by the distribution of power across the states. Waltz claimed that any theory of international relations should be able to tell both about the units-states- and the system as a whole.

The global economy has expanded exponentially since the beginning of the 20th century. A very important issue that has come to develop in the last thirty years is the global economy more or less abandoned a fixed currency system and using the modern floating currency/exchange model in an attempt to regulate markets in the newly developed foreign market economy. But what effects, both positive and negative have there been in the adoption of a floating model compared to a fixed model? Is the global economy better off or worse off by this implementation? To really be able to analyze the issue it is important to know the background of this switch from a fixed to floating currency system, who are the

Realism is a dominant theory of international relations focuses on state 's security and power primarily. Besides, states are considered the only unitary rational actors where its survival and interests is the cornerstone of interstates relation highly based on might rather than on right. Hence, realists believe that people are by nature sinful and instinctively seeking power to dominant others. Power will be everlasting in the human 's nature and the possibility to be eradicated is a utopian aspiration (Kegley, 1993). On the other hand, Liberalism as a dominant theory of international relations emphasizes peaceful interstates relations where the preference of states goes beyond politics to economic and social interaction to achieve a harmonious environment and reducing war conflicts. Basically, the liberals underline that states are not unitary actors and non-states actors are significant to take a part in the realm since states are not rational and all actors will function better together. Additionally, power and security dilemma is a secondary objective.

The principle of international relations during the Cold War, realism, completely disregards the impact of culture on interactions between states. For realists, the imperative actors on the international scene are states and their ultimate goal is maximizing the power they can ultimately possess. In general, realist theory coincides with the idea that no matter the time period or the state, actors all have one

Realism has been the dominant political theory in International Relations for many years. The theory of Realism can date back to almost fifth-century B.C. But Political Realism, and the way we use the theory today was conceived in the 1940’s by Hans Morgenthau who was influenced by the works of Niccolo Machiavelli. In Morgenthau’s works such as Magnum Opus and Politics Among Nations, Morgenthau structured an account of Political Realism that has dominated international studies often referred to today as Classical Realism. Realism is an extremely pessimistic theory that believes that we should see the world for how it is and not how we wish it would be. For this reason Realists must make many assumptions about human nature and make objective laws centered around these assumptions. They must also focus on the notion that states are the primary actors in international affairs and there main goal is maintaining power and security. It also stresses the rational, objective and unemotional realities that come with state decision making. Because of its prominence, several subtheories within Realism have emerged. Classical Realists like Thomas Hobbes, Hans Morgenthau and Nicolo Machiavelli believe in the same basic principles as neorealist realists like Kenneth Waltz, but they still differ in several ways.

Realism and Liberalism are two significant and dominant theories in global politics. Both have contrasting ideas when dealing with how states should relate to each other in the field of international relation. In today’s world order, most causes of states’ actions can be labelled along either of these two theories. Realists consider states as being the principal actors in the international arena, who are often concerned about their security, act in pursuit of their own national interests and struggle for power (Bull 1995:189).

International relations theory is a set of ideas that explains how the international system works. Unlike an ideology, a theory of international relations is backed up with concrete evidence. Some of the characters in Dr. Strangelove represents two of major theories of international relations: realism and liberalism,. Realism is defined as states struggle for power and to maximize their national interest. Realism also stresses seeing the world as it really is rather than how they would like it to be. According to realism, states work only to increase their own power in relations to that of other states. Realism characteristic includes and are not limited to:

Many scholars have observed IR (International relations) through different theoretical lens throughout time, the two most debated on theoretical lens in international relation are liberalism and realism. Realism according to Korab-Karpowicz is the view of international politics in which states are only concerned with there own self interest, security and struggle of power (Korab-Karpowicz/2017). While on the other hand liberalism defined by John Ikenberry is the focus of “society, interdependence and progressive change”(Ikenberry 2009/pg.204-205).Although realism sees the world in a pessimistic view, it is the most powerful descriptor of IR. This essay will support the claim that realism has provided a more convincing description of IR through the analysis of power lust, self security and economic greed states have shown throughout time. However the essay will also entertain liberalist arguments through the view of interdependence and common interest.

Kenneth Waltz’s key argument is that states have little choice but to compete with each other for power as there exists no higher authority that they can turn to in times of crisis. After all, stronger states are less likely to be attacked than weaker states. Therefore, to survive, their main goal should be to ensure that other states do not gain power at their expense. Waltz emphasizes that “the first concern of states is not to maximize power, but to maintain their positions in the system.” Neo-realism’s principal departure from classical realism is the “idea that international politics can be thought of as a system with a precisely defined structure.” It also breaks with classical realism

OW does one determine whether a currency is fundamentally undervalued or overvalued? this question lies at the core of international economics, many trade disputes, and the new IMF surveillance effort. George Soros had the answer once—in 1992—when he successfully bet $1 billion against the pound sterling, in what turned out to be the beginning of a new era in large-scale currency speculation. Under assault by Soros and other speculators, who believed that the pound was overvalued, the British currency crashed, in turn forcing the United Kingdom’s dramatic exit from the european exchange Rate Mechanism (eRM), the precursor to the common european currency, the euro, to which it never

Current account balances necessitate a one-way offsetting capital flow of equal magnitude to prevent exchange rate fluctuations. Capital flows are, however, not homogenous. Consequently, the financial media often falls into the trap of solely stressing the perceived power of interest rate differentials in driving capital flows and, therefore, exchange rates. The reality is, however, that the role of "hot money" flows between banking centres is much over-hyped in exchange rate determination, particularly during periods devoid of financial stress.

In the next section, we will detail the advantages and disadvantages of floating and fixed exchange rate regimes. The possible exchange rate regimes are on a flexibility continuum of exchange rate regimes which Frankel (1999) describes in nine categories from the most rigid (the currency union) to the least (the clean float):

After the exchange rate crises, lots of countries choose to adjust flexible exchange rate together with some monetary policies. However, history gives a different opinion of how monetary policy response to nominal and real exchange rate. In the 1970s, economists suggest a flexible exchange rate could help to insulate the economy from foreign real shocks, and floating can give monetary policy a measure of independence. Thus by this opinion we can set interest rate to attain internal balance and set exchange rate to secure external balance. However,