Question

Discuss the implications for the economy if Turkey moves on to a fixed exchange rate regime in the year 2018. Take a broad view of economic parameters.

Answer 1

Fixed exchange rate regimes occur when the government of a country fixes the value of its currency to other currency, a basket of currencies or a commodity such as gold.

if turkey moves to a fixed exchange rate then it means that the turkish government will peg its currencies to an internationally accepted currencies such as US dollor as was under the bretton wood system..we know that under the floating exchange rate system the value of currencies of a country is determined by the demand and supply of its currencies .however in the fixed exchange rate regime Turkiey will be able to deliberately manage the price or say value of its currencies by the revaluation or devaluation of its currencies and there by may influence its export and import .we have an example here that how china deliberately managed to devalued its currency against US dollor to make its export relatively cheaper which has huge reprecussion as by doing this china has flooded its cheap products in the US market.

likewise if turkey switch to a fixed exchange rate regime there is a great possibility of the same action taken by the Turkish government to keep its import cheaper which has a huge trade relationship with the European countries.and this may spark a trade war between the countries with which it has trade relations and a cycle of ill trade practices.