Dirty Float

DEFINITION of 'Dirty Float'

A system of floating exchange rates in which the government or the country's central bank occasionally intervenes to change the direction of the value of the country's currency. In most instances, the intervention aspect of a dirty float system is meant to act as a buffer against an external economic shock before its effects become truly disruptive to the domestic economy.

Also known as a "managed float".

BREAKING DOWN 'Dirty Float'

For example, country X may find that some hedge fund is speculating that its currency will depreciate substantially, thus the hedge fund is starting to short massive amounts of country X's currency. Because country X uses a dirty float system, the government decides to take swift action and buy back a large amount of its currency in order to limit the amount of devaluation caused by the hedge fund.

A dirty float system isn't considered to be a true floating exchange rate because, theoretically, true floating rate systems don't allow for intervention.

RELATED TERMS
  1. Currency

    Currency is a generally accepted form of money, including coins ...
  2. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  3. Clean Float

    Also known as a pure exchange rate, a clean float occurs when ...
  4. Fixed Exchange Rate

    A country's exchange rate regime under which the government or ...
  5. Pegging

    1. A method of stabilizing a country's currency by fixing its ...
  6. Forex - FX

    The market in which currencies are traded. The forex market is ...
Related Articles
  1. Options & Futures

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  2. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  3. Forex Education

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  4. Personal Finance

    5 Places Where Your Travel Dollar Goes Furthest

    The dollar is pretty strong right now, but where is it strongest? Canada? South Africa? Europe? Here are five places to travel to right now on a budget.
  5. Term

    Why Countries Keep Reserve Currency

    Central banks and financial institutions hold large amounts of foreign money as their reserve currency.
  6. Term

    How Does a Currency Peg Work?

    When a government initiates a currency peg, it pegs its currency’s value to that of another country.
  7. Investing Basics

    Explaining the Real Effective Exchange Rate

    The REER is a measure of the weighted average of a country’s currency against an inflation-adjusted and trade-weighted index of other currencies.
  8. Investing Basics

    Explaining Fixed Exchange Rates

    A government using a fixed exchange rate has linked the value of its currency to the value of another country’s currency, or the price of gold.
  9. Forex Fundamentals

    How Foreign Exchange Affects Mergers and Acquisitions Deals

    Learn how foreign exchange rates can impact the flows of international merger and acquisition (M&A) transactions, and understand how deals can impact exchange rates.
  10. Financial Advisors

    Why When China Sneezes the U.S. Catches a Cold

    The size and breadth of the Chinese economy will naturally affect the U.S. Making clients aware of it can help manage portfolio expectations.
RELATED FAQS
  1. What risks does a Foreign Institutional Investor (FII) face?

    The term "foreign institutional investor" (FII) normally refers to large, non-Indian companies investing in Indian financial ... Read Full Answer >>
  2. What is the purpose of the International Monetary Fund?

    The stated goals of the International Monetary Fund include offering policy advice to member governments and central banks; ... Read Full Answer >>
  3. How are international exchange rates set?

    International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency ... Read Full Answer >>
  4. How often do exchange rates fluctuate?

    Exchange rates float freely against one another, which means they are in constant fluctuation. Currency valuations are determined ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center