¿What is the exchange rate band?

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Since 1994 an exchange rate band regime was defined for Colombia, representing an intermediate scheme between a fixed rate of exchange regime and a freely floating regime. On 29th September of 1999 the exchange rate band system was eliminated and free floatation system of nominal exchange was adopted.

 

The exchange rate band is defined by the limits within which the rate of exchange can fluctuate.

 

Structure of the exchange rate band

 

  • Maximum rate (ceiling rate) 

 

This is the maximum rate that the Banco de la República is willing to permit in the interbanking dollar market. When the market takes the rate to this level, the Bank will sell as many dollars as are required in order to maintain the rate of exchange at that level. This rate changes every day according to the slope of the exchange rate band.

 

 

  • Minimum rate (ground rate) 

 

This is the minimum rate that the Banco de la República is willing to permit in the interbanking dollar market. When the rate reaches this level, the Bank buys foreign currency so that the exchange rate remains at that level. This rate changes every day according to the slope of the exchange rate band.

 

 

  • Slope of the exchange rate band 

 

This is the annual percentage of devaluation that is applied to the floor ground rates.

 

 

  • Width of the exchange rate band 

 

This is the distance that exists between the ceiling and ground rates. It is defined as a percentage, measured from a middle point.