Free float - Financial definition
Concise definition of the term free float
Free float is an exchange rate regime where a currency's value is determined entirely by market forces without direct government or central bank intervention.
Comprehensive definition of the term free float
A free float currency system allows exchange rates to fluctuate freely based on supply and demand in the foreign exchange market. This contrasts with fixed or pegged exchange rate systems where a government maintains a set rate. Major currencies like the US dollar, euro, and Japanese yen for example operate under a free float regime.
Under this system, central banks may still indirectly influence their currency's value through monetary policy or verbal intervention, but they do not commit to maintaining any specific exchange rate level. This approach can lead to more volatile exchange rates, reflecting real-time economic conditions, trade balances, and investor sentiment.