Currency is not convertible, if the country has almost all kinds of restrictions and, above all, a ban on the purchase – sale of foreign currency, its storage, export and import. Inconvertible currency is typical of many developing countries.
3.5. Exchange rate regime
Exchange rate regime characterizes the order setting exchange ratios between currencies[33].
Distinguish between fixed and «floating» exchange rates and options, which combine in various combinations of the individual elements of a fixed and «floating» rate. Such a classification of exchange rate regimes generally conformed to the IMF currency division into three groups:
– Currency-bound (to a single currency, «currency basket» or the international monetary unit);
– Currencies with great flexibility;
– Currencies with limited flexibility.
Fixed exchange rate regime
Under the regime of fixed exchange rate the Central Bank sets the exchange rate at a certain level against the currency of any country to which the «tied» the currency of the country, the currency basket (usually it consists of currencies of major trading partners) or to the international monetary one.
Feature a fixed rate is that it remains unchanged for a longer or shorter time (several years or several months), that is not dependent on changes in supply and demand for the currency. Change the fixed rate is a result of its formal review (depreciation – decrease or revaluation – increase).
With a fixed rate the central bank often sets the various courses on individual transactions – treatment of multiple exchange rates. Fixed exchange rate regime is usually installed in countries with rigid exchange restrictions and non-convertible currency.
Mode of the «floating» or floating its currency
This mode is typical for countries where currency restrictions are absent or insignificant. Under such a regime exchange rate changes with relative ease under the influence of supply and demand for the currency. «Demand creates supply», the well-known position, but in complex systems is possible by introducing a second level of innovation in the process, it becomes the source of his self-control and random evolutionary dynamics[34].
Mode «floating» exchange rate does not preclude holding the Central Bank of various measures aimed at regulating the exchange rate. In March 1973 the country switched to floating exchange rates. However, the dominant state-controlled swimming rates.