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A floating exchange rate prices a nation's currency against other currencies according to supply and demand in the foreign exchange market. Providing policymakers with a critical tool for protecting their economies, this mechanism is used by most developed markets as well as some of the larger emerging markets. The economic rationale for a floating exchange rate is that it shields an economy from the shocks that can occur under a fixed rate system when the market forces a central bank to drop or adjust its currency peg. If a central bank creates a fixed value for its currency, it must constantly buy and sell that currency to maintain its value at the desired level.

Central banks in this situation have a difficult time using monetary policy to spur economic growth or target inflation or interbank interest rates. Countries with floating exchange rates have many more options for fighting economic problems and growing on paths of their own choosing.

Despite their advantages, floating exchange rate systems draw criticism when changes in currency valuation hurt industries. In 2010 the Turkish government was criticized for its floating exchange rate , which had caused the lira ( TRY , quote ) to appreciate against developed currencies. Even though that trend has continued, the lira continues to float freely in the foreign exchange market.

The biggest recent news in the world of exchange rates is Myanmar's (formerly Burma) announcement that it will float the kyat ( MMK , quote ) as part of its push toward economic liberalization. The Southeast Asian nation currently breaking out from decades of military junta rule wants to encourage the entrance of foreign corporations  like Coca-Cola ( KO , quote ) and PepsiCo ( PEP , quote ). Myanmar's announcement may indicate some emerging market economies believe a floating exchange rate is key to showing the world that freer economic systems are about to develop.

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