Dual and Multiple Currency Exchange Rates

Many times countries across the world implement a combination of fixed and floating exchange rate for their currencies. Click here for introduction to currency exchange rates. Central banks of nations do this to overcome economic crisis or to meet certain requirements. Both dual and multiple currency exchange rates are not advocated for growing economies.

Dual currency exchange rate involves applying fixed exchange rate for certain market segments, like importers and exporters and keeping other segments floating. By this way government can regulate inflation rates and essential commodity prices while keeping the foreign reserves undamaged. Multiple currency exchange rates involve applying different (both fixed and floating) exchange rates to different market segments. Usually essential market segments have favored exchange rates to ensure their growths and non-essential and luxury market segments have less favored (or discouraging) exchange rates.

Generally applying multiple currency exchange rates to market segments produces the same effect of applying different tariffs and taxes to these segments. Most governments employ dual and multiple exchange rate systems for a short-term to quick-fix economic problems. If the problem continues tariff and tax rates are implemented directly. Most times, implementing long-term multiple rates negatively affect a nations industries and results in corruptions. Often many retail forex traders avoid currencies of nations with dual and multiple exchange rates.

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