What is ‘Joint Float’
Two or more countries agreeing to keep their currencies at a same exchange rate relative to one another, but not relative to other countries. The countries involved in a joint float agreement form a sort of partnership where their currencies move jointly. The central banks of the countries participating in this agreement maintain the joint float by buying and selling each others currencies.
Explaining ‘Joint Float’
Countries that decide to link their currencies do it for various reasons. For example, a small country next to a larger one will be affected more severely by currency exchange rates. In this case, a minimal shift from one currency to another will impact the price of the currency in the smaller country more than it would impact the larger country. The goal is that if the countries form a joint float by linking their currencies to form a fixed exchange rate, their currencies become stronger and better able to withstand currency fluctuations. West Germany, France, Italy, the Netherlands, Belgium and Luxembourg created a European joint float in 1972.
Further Reading
- Trade and financial interdependence under flexible exchange rates: the Pacific area – www.nber.org [PDF]
- Is the re-launching of economic and monetary union a feasible proposal – heinonline.org [PDF]
- Cointegration, error-correction, and joint efficiency in forward and futures markets for major foreign currencies – www.sciencedirect.com [PDF]
- East Asian Dollar Standard, Fear of Floating, and Original Sin [J] – en.cnki.com.cn [PDF]
- To Float or Not to Float – search.proquest.com [PDF]
- The financial crisis and sizable international reserves depletion: From 'fear of floating'to the 'fear of losing international reserves'? – www.sciencedirect.com [PDF]
