Currencies are traded in exchanges and are valued based on inflation, gnp. Some currencies are controlled by their own country. China controls their own currency, so does Venezuela, and Argentina along with others.
Who determines the exchange rate of local currency? the central bank of the country or the world market?
By the world market
Who determines the exchange rate of local currency? the central bank of the country or the world market?
If the central bank subscribes to a floating exchange regime then the price of domestic currency is determined by demand and supply in the world money markets. Its exchange rate is influenced by the countries balance of payments position, inflation, interest rates and fiscal policy among others.
But the central bank can also set a fixed exchange rate for the country (popular among many developing countries) to influence its trade balance, for example. An effective fixed rate system requires abundant foreign exchange reserves to counter speculative attacks (e.g. 1997 Asian financial crisis) against the local currency.
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