A floating currency is a currency that uses a floating exchange rate as its exchange rate regime. A floating currency is contrasted with a fixed currency.
In the modern world, the majority of the world's currencies are floating. Central banks often participate in the markets to attempt to influence exchange rates. Such currencies include the most widely traded currencies: the United States dollar, the euro, the Norwegian krone, the Japanese yen, the British pound, the Swiss franc and the Australian dollar. The Canadian dollar most closely resembles the ideal floating currency as the Canadian central bank has not interfered with its price since it officially stopped doing so in 1998.
The US dollar runs a close second with very little changes in its foreign reserves; by contrast, Japan and the UK intervene to a greater extent. From 1946 to the early 1970s, the Bretton Woods system made fixed currencies the norm; however, in 1971, the United States government would no longer uphold the dollar exchange at 1/35th ounce of gold, so that the US dollar was no longer a fixed currency. After the 1973 Smithsonian Agreement most of the world's currencies followed suit.
A floating currency is one where targets other than the exchange rate itself are used to administer monetary policy. See open market operations.
Read more about this topic: Floating Exchange Rate
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