Classification of Exchange rate System:
1) Dollarization:- Using foreign currency as its national currency.
2) Pegged rates:- When one country directly fixes its exchange rate to a foreign currency so that the country will have somewhat more stability than normal float.
3) Managing Floating rates:- When a currency's exchange rate is allowed to freely fluctuate subject to supply and demand.
IMF Exchange Rate Regime Classifications
1-Exchange Arrangements with No Separate Legal Tender: Currency of another country circulates as sole legal tender or member belongs to a monetary or currency union in which same legal tender is shared by members of the union
2-Currency Board Arrangements: Monetary regime based on implicit national commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate
3-Other Conventional Fixed Peg Arrangements: Country pegs its currency (formal or de facto) at a fixed rate to a major currency or a basket of currencies where exchange rate fluctuates within a narrow margin or at most ± 1% around central rate
4-Pegged Exchange Rates w/in Horizontal Bands: Value of the currency is maintained within margins of fluctuation around a formal or de facto fixed peg that are wider than ± 1% around central rate
5-Crawling Peg: Currency is adjusted periodically in small amounts at a fixed, preannounced rate in response to changes in certain quantitative measures
6-Exchange Rates w/in Crawling Peg: Currency is maintained within certain fluctuation margins around a central rate that is adjusted periodically
7-Managed Floating w/ in No Preannounced Path for Exchange Rate: Monetary authority influences the movements of the exchange rate through active intervention in foreign exchange markets without specifying a pre-announced path for the exchange rate
8-Independent Floating: Exchange rate is market determined, with any foreign exchange intervention aimed at moderating the rate of change and preventing undue fluctuations in the exchange rate, rather than at establishing a level for it
