A Dirty Float is a foreign currency regime in which a central bank intervenes in the foreign exchange markets to manipulate the balance of supply and demand in order to curb the volatility of a specific currency. The name "dirty float" comes from the fact that the central bank is constantly intervening in the market to keep the currency from moving too much in either direction.While this intervention can help to stabilize a currency, it also creates a lot of problems. For one, it can lead to large fluctuations in the exchange rate between the two currencies. This makes it difficult for businesses to predict how much their products will cost in other countries, and can lead to big losses if they don't plan carefully.Another problem with dirty floats is that they can create an artificial sense of stability. This can lead investors to take on more risk than they should, believing that the central bank will always be there to prop up the currency. When the central bank eventually decides to stop intervening, the currency can collapse, leading to massive losses for investors.If you're thinking of investing in a country with a dirty float regime, be sure to do your research and understand the risks involved.
