External Balance and the Exchange Rate
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While in macroeconomic theory we distinguish simply between fixed and flexible rates, in practice there are numerous degrees of flexibility. Furthermore, in segmented regimes there are dual or multiple rates, for instance an official rate for imports and exports and a parallel rate for all other, mainly financial, transactions. Dual or multiple rates are considered sub-optimal, but in sub-optimal policy environments they can serve specific purposes. A dual rate regime may be indicated when violent financial shocks would lead to strong fluctuations of the exchange rate. A dual rate regime may protect the trade flows from such fluctuations.