Exchange Systems Today  

Today countries can choose from a variety of exchange systems. A free floating exchange system, as mentioned earlier, permits the market to establish the price of a currency. Many factors such as domestic investments versus foreign investments, trade surpluses and deficits and domestic taxation policies, could affect the exchange rate, and would all be able to occur regardless of their effects on the currency.

A pegged exchange rate as in the Bretton agreement, would function much like the traditional way of the gold standard with its currency being linked to the rate of another currency, in most instances the U.S. dollar. If a balance of payments deficit exists, the central bank would then probably buy a specific amount of the domestic currency in return for its foreign currency reserves, thus bringing back the price of the currency to its "peg" but also at the same time depleting the amount of its currency available in its reserves.

Some countries manipulate their currency rates in order to help domestic needs (while maintaining their free-floating status) by boosting (revaluing) their exchange rate prior to an oil shipment, for example (Luca, 17). Other countries, such as Brazil, before changing to a free floating system, peg their currencies to that of the U.S. dollar or a different currency while permitting the rate to fluctuate within a certain range not unlike the Bretton Woods system.