11.2.4—Exchange rate system changes

Moving from a fixed to a floating regime, or changing the width of a managed band, changes how the currency responds to shocks and how much the central bank must intervene.

A float preserves more monetary-policy autonomy but can create exchange-rate volatility. A peg can stabilise trade prices and expectations but requires reserves, credibility and adjustment through interest rates, prices or output.

A country abandoning a rigid peg may see a rapid depreciation that restores competitiveness but raises import prices; keeping the peg would instead require reserves or tighter domestic policy.

Changing the regime does not guarantee a particular exchange-rate direction or trade result; the initial imbalance and market expectations still matter.