The Case against Floating Exchange rates Discipl ne Floating exchange rates do not provide discipline for central banks Central banks might embark on inflationary policies(e.g the German hyperinflation of the 1920s) The pro-floaters' response was that a floating exchange rate would bottle up inflationary disturbances within the country whose government was misbehaving Copyright C 2003 Pearson Education, Inc Slide 19-10Copyright © 2003 Pearson Education, Inc. Slide 19-10 ▪ Discipline • Floating exchange rates do not provide discipline for central banks. – Central banks might embark on inflationary policies (e.g., the German hyperinflation of the 1920s). • The pro-floaters’ response was that a floating exchange rate would bottle up inflationary disturbances within the country whose government was misbehaving. The Case Against Floating Exchange Rates