With specific reference to the UK economy over the past 20 years, Essay

With specific grapheme to the UK economy over the past 20 years, critically discuss the relative advantages and disadvantages of operating a vagabond win over come in regime - Essay ExampleIn a floating exchange compute system, the market forces determine the range of the cash that is, by the interactions of several of banks, firms and other institutions seeking to sell and misdirect currency for the purposes of clearing transactions, arbitrage, hedging, and speculation. In October 1990, the UK joined the European Exchange Rate Mechanism (ERM), where the Sterling flap was fixed against other currencies. In September 1992, UK left the ERM when the pound experienced sustained selling pressure, and the financial authorities could no longer justify extremely high interest casts to maintain the value of the pound, when the domestic economy was under a deep recession. Since 1992, UK has adopted a flexible exchange rate system there is no official intervention by the Bank of Engl and to the currency markets to attain the in demand(p) level of exchange rate (Roderick & Paul 2004, p.143).The following are the key arguments in favor of a flexible exchange rate. First, reduced necessity for currency reserves there is no target for an exchange rate level meaning there is little necessity for the Bank of England to hold large collection plate reserves of foreign currency and gold to use in possible official intervention, in the currency markets. However, in the real world, for example, in UK, the government always has some currency reserves, in case of rest period of payments crisis, or the sentiment that the Sterling Pound is getting a bit too low or too high (Karl 2010, p.182). Second, useful tool of macroeconomic adjustment a floating exchange rate may act as a useful instrument of macroeconomic adjustment. For example, depreciation of the currency should let a boost in demand of net exports and thereby stimulate growth. This assumes that the higher wage cl aims or export prices do not dissolve the achievements from a low exchange rate as celebrated