Introduction A floating exchange rate is “an exchange rate regime whereby a currency’s value is allowed to fluctuate according to the performance of the foreign exchange markets”. This means that the exchange rate is flexible and can change from time to time in response to the dynamics of the foreign exchange markets. The floating exchange rate has been adopted by several countries since it helps them to dampen the effects of shocks and predict the possibility of having a balance of payment crisis. Besides, it adjusts itself to the changes in the market. Despite these benefits, the floating exchange rate has in several cases failed to ensure stability in the financial markets and to promote economic growth. Consequently, proposals have been formulated in response to its weaknesses. This paper analyzes such proposals in terms of their merits and demerits. Limitations of the Floating Exchange Rate Regime The floating exchange rate regime has failed to ensure stability in financial markets and stimulate economic growth due to the following reasons. First, a flexible exchange rate limits a country’s autonomy over its national macroeconomic policies. This is attributed to the high international capital mobility associated with the world economy. According to the Mundell-Fleming model, a floating exchange rate limits the extent to which fiscal policies can be implemented in a country thus lowering economic growth. Second, liberation of monetary policy at domestic level is often illusionary under a floating exchange rate. This is attributed to the open nature of financial markets and the fact that central banks are usually attached to monetarist targets. Thus under floating exchange rate, “the monetary policy becomes exchange rate policy”. This means that the ability of an expansionary monetary policy to stimulate domestic demand is determined by the exchange rate depreciation and the resultant impact on trade balance. It is also difficult to depend on monetary policy at international level when using floating exchange rate. In most cases, an expansionary monetary policy in one country leads to a deflationary shock in another country especially if the aggregate demand is strategically composed of export-import balances. Third, the use of floating exchange rate leads to uncoordinated macroeconomic policies. “Shocks from foreign exchange markets are usually transmitted to domestic markets”. Consequently, each government develops its own defense mechanism in response to the shocks and this complicates the process of coordinating macroeconomic policies. Lack of coordination is likely to cause more volatility in the economy especially in the employment sector. Fourth, the floating exchange rate regime is likely to worsen speculation and volatility associated with foreign exchange markets. Investors normally sell their stock of a given currency if they expect its value to depreciate in order to make profits. Speculation normally results into high exchange rate fluctuations in the long run as investors respond to changing economic trends. High fluctuations in exchange rate is likely to cause great instability in the foreign exchange markets as investors lose their confidence in the market. Besides, investors who are not able to