m that was the central point of the 2000 IMF/World Bank program for Turkey. Under this plan, the currency was to be devalued slowly, so as to not cause panic, with the result that inflation would be held down. However, market forces caused the lira to float in late February, and once it began to float, confidence in its performance quickly eroded (Pope, 2001b, p. A17).
There are two basic types of currencies that float: free and managed. Free currencies are not subject to direct government intervention and because there are literally billions of units of the money available for trade by buyers and sellers. Traders who purchased dollars one day may sell them the next for yen, and so are not tied to any particular currency for themselves or those on whose behalf they may be working. Managed currencies are subject to intervention by their governments; such intervention is normally undertaken when the government perceives the national interest to be at stake (governments such as Turkey devalue their currency in order to reduce the amount of foreign currency that the domestic currency can buy) (Baumol & Blinder, 2001, p. 368). Governments have an interest in the value of their currencies because strong currencies make their exports more expensive and less competitive, while relatively weaker currencies improve the outlook for exports. Since global trade is now the norm, maintaining a strong export trade is particularly important to most governments. In the case of Turkey, the nation wants to join the EU, but must meet the infrastructure requirements set up by that group, which provides additional incentives for instituting economic reform (Pope, 2001c, p. A18).
Some managed currencies (including the Russian ruble during the 1990s) are managed within a "band;" the currencies float within a predetermined price range (the band), but the government will intervene to prevent the currency from either rising or falling outside the b...