Pros and Cons of a Flexible Exchange Rate

Pros and Cons of a Flexible Exchange Rate

pros

• no direct intervention necessary to achieve equilibrium
• allows economies to use monetary policy to stimulate growth or reduce inflation rather than fix exchange rate
• protects a country from foreign inflationary pressures

cons

• creates uncertainty in international trade
• the exchange rate may adversely effect a country's economy

Dr. Stephanie Powers, "Exchange rate", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)