Managed Float

A managed float, sometimes called a dirty float, sits between a fully floating exchange rate and a fixed one. The central bank does not commit to a specific rate, but it may buy or sell its own currency, adjust interest rates or use other tools to prevent sharp or disorderly movements.

For example, if a currency falls rapidly because of market panic, the central bank might sell some of its foreign currency reserves to buy its own currency, slowing the decline.

Many emerging market countries use managed floats, including India and Singapore, which manages its currency against a basket of currencies. This approach gives some of the flexibility of a floating rate while reducing the risks of extreme volatility, which can hurt trade, inflation and financial stability.

Managed floats can be less transparent than fully floating or fixed systems, since markets may be uncertain about when the central bank will intervene. Intervention also requires adequate foreign reserves.