Another way to end selling pressure is to adopt a floating exchange rate. Floating
permits the exchange rate to “find its own level,” which is almost always depreciated
compared to the previous pegged rate. Devaluation and allowing depreciation make
foreign currency and foreign goods more costly in terms of domestic currency,
which tends to decrease demand for foreign currency, ending the imbalance that
triggered selling pressure. However, in some cases, especially when confidence in
the currency is low, the crisis continues, and further rounds of devaluation or depreciation
occur.
Currency crises that end in devaluations or accelerated depreciations are sometimes
called currency crashes. Not all crises end in crashes. A way of trying to end
the selling pressure of a crisis without suffering a crash is to impose restrictions on
the ability of people to buy and sell foreign currency. However, these controls create
profit opportunities for people who discover how to evade them, so over time controls
lose effectiveness unless enforced by an intrusive bureaucracy. Another way to
end selling pressure is to obtain a loan to bolster the foreign reserves of the monetary
authority. Countries that wish to bolster their foreign reserves often ask the IMF
for loans. Although the loan can help temporarily, it may just delay rather than end
selling pressure. The final way to end selling pressure is to restore confidence in the
existing exchange rate, such as by announcing appropriate and credible changes in
monetary policy.