Custom Flexible Exchange Regimes Essay

Flexible exchange Regimes. The flexible exchange rates on the other hand provide a flexible regime that can allow for the flexibility of economic activities within a country that embraces it. With floating exchange rates a country is able to pursue an independent monetary policy instead of having its monetary policy dictated by the currency country. 

The flexible exchange rates provide caution against shock in the market. It is evident that the flexible exchange rates regimes poses more resilience to shocks and further facilitate distribution such shocks or the burden brought about by adjustments to external parties and the domestic economy (Wright, 1984 p24).

One short coming is the flexible rate regime is that it can not hinder or delete exchange rate volatility as much as a fixed exchange rate regime does (Williamson,1996 p97). However this also give the floating rate regimes a mile over the fixed ones since the inhibition of volatility great dampens the incentives  for financial markets to grow hedging products and also develop financial instruments in which case a great risk may be imparted to the public sector in effect.

Conclusion

Certainly, the flexible exchange regimes enjoy superiority over the fixed exchange rate regimes. This shows that the later is better that the former. However it is worth noting that different economic or financial circumstances may necessitate the use of either of the two. Emerging market economies such as China, South Korea, Brazil and Mexico certainly find it suitable to use the flexible regimes. This helps such economies to fit into the global economies making the economies of the individual countries robust and resilient. However, economies with less developed monetary systems and credible institutions normal face special problems.