Friedman: float or fix?

For economist Milton Friedman, there were three distinct types of exchange rate regimes: floating, fixed, and pegged -- each with different characteristics and different results. In Friedman's sense, strictly fixed and floating rates are regimes in which the monetary authority is aiming for only one target at a time. Although floating and fixed rates appear dissimilar, they are members of the same free-market family. Floating- and fixed-rate regimes are inherently equilibrium systems in which market forces act to automatically rebalance financial flows and avert balance-of-payments crises. Unlike floating and fixed rates, pegged rates invariably result in conflicts between monetary and exchange rate policies. In the 1960s, Friedman turned his attention toward monetary problems in developing countries, where inflation and exchange controls were pervasive. Friedman's real position was that an exchange rate driven by a free market was best, and that both fixed and floating exchange rates had equal claims to be considered market-determined.