Floating exchange rates ensure monetary autonomy

Floating exchange rates ensure monetary autonomy

One of the major arguments put forward in favor of floating exchange rates is that they enable each country to operate an independent monetary policy; that is, they restore monetary autonomy enabling each country to determine its own inflation rate.Countries that prefer low rates are free to adopt tight macroeconomic policies experiencing appreciating currencies; while countries that pursue expansionary macroeconomic policies will suffer higher inflation and depreciating currencies.This contrasts with what happens under fixed exchange rates where the need to have common inflation rates to maintain competitiveness constrains countries to pursue similar monetary policies.