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In the light of recent British economic experience, critically assess the view that allowing the pound to float is better for Britain than having a fixed exchange rate.
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In the light of recent British economic experience, critically assess the view that allowing the pound to float is better for Britain than having a fixed exchange rate. The UK government can choose to 'fix' or 'float' the exchange rate. But what do these terms mean? Which method is 'better' than the other? By defining what fixed and floating exchange rate systems are, and by using the recent experiences of the British economy, it is possible to shed a little light on the issues surrounding the control of exchange rates. A floating exchange rate system is a system of supply and demand for pounds. If, for example, the UK is in deficit due to excess imports from a particular country, then the pound should depreciate against the currency of that country. This happens because UK importers sell extra pounds on the foreign exchange markets in order to buy the other country's...
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