Dual Rate System: The Daily Definition

 In The Daily Definition

What is a dual rate system?

dual rate system

A dual rate system is a situation in which a country’s domestic currency has two exchange rates. They will have one “fixed” rate, and then a second “floating” rate that changes with the market for certain goods, sectors, or trading systems. Both rates are recognized by the government, and the purpose of a dual rate system is to protect that country’s reserves. This system is also referred to as a dual exchange rate system.

An example:

In a dual rate system, the majority of the country uses the fixed rate for doing business. The floating rate is only used for particular goods that the government has a unique interest in. Floating rates are usually only used during times of economic crisis. They’re meant to protect the country from extreme devaluation.

For example, Argentina introduced a dual rate system in 2001 after a grueling period of economic turmoil. With this system, imports and exports were traded at an exchange rate of 7% below the fixed rate. This was an attempt to inject value into Argentinian goods.

Unfortunately, this attempt backfired. Today, the country struggles with multiple exchange rates and a currency black market.

Our two cents:

Stability is important in the business world. Chaotic markets can exact a heavy toll.

There’s a lot that you yourself can’t control about markets, of course. Certain outside factors, such as, say, a global pandemic, are just wild cards. There’s very little anyone can do about them.

What you can and should be able to control, though, is stability within your own business. You need to be deeply in tune with the signals your company is sending out, and the best way to do this is to bury yourself in data. Know your inventory inside and out. Know how to tell when you’ve made money, and know what your pipeline looks like.

Now, if that sounds overwhelming, don’t worry — it isn’t! At least, it isn’t if you’re working with an ERP solution that supports complete visibility into your processes. If you aren’t, we highly suggest looking into ways to improve that visibility sooner rather than later. In the immortal words of The Lion King character Scar: be prepared!

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