The floating exchange rate, or as it is called, the floating of the currency is the abandonment of the exchange rate of a currency by equalizing it with other currencies in order to become completely liberal, without the intervention of the government or the central bank in determining it directly.
So that it is created automatically based on the mechanism of supply and demand in the market, through which the exchange rate of the local currency against foreign currencies is determined.
The floating currency exchange rates are constantly changing according to the changes in supply and demand for foreign currencies, in a way that may make them change several times over the course of a single day.
Floating in its simple sense means not setting the price of a particular country's currency and letting it move and change against the major currencies according to the ratio of supply and demand. So that the increase in demand for the currency leads to a rise in its price and vice versa.
Hence, central banks do not target a specific price for their local currencies when they follow the absolute float approach. Rather, the price of the currency here is similar to the price of gold and other metals, which is subject to daily change in global markets, and may even change from hour to hour.
The word “flotation” has become comprehensive for the ordinary man in the street without being bound by central banks, monetary policy workers, financial experts, economists, and banks, specifically in areas that suffer from economic turmoil as is the case in Algeria and Egypt, or political and security turmoil as is happening in Yemen, Syria and Libya.
It has been rumored about the central banks in such countries that they are embarking on the application of the floating currency approach after their inability to stop the continuous deterioration of their currencies in front of them.
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