Perhaps no other benefit of floating rates is greater than the fact that they are self-adjusting. Due to the fact that floating rates are based on supply and demand, they have the unique ability to adjust along with changes in taste, relative incomes, relative prices, relative real interest rates, and speculation. In order to stabilize their exchange rates, governments are forced to intervene directly or indirectly in the foreign exchange market. In effect, they are tampering with what the world has deemed as the equilibrium price. Fixed rates must also deal with the question of who is going to initially set the exchange rates for the world.
Problems also arise for fixed rates with an increase in the volume of trade in the world.
The biggest criticism of floating rates has been their instability over the past 23 years. Exchange rate volatility has been significantly higher since around 1973, leading to instability in trading. Currency options and futures markets on exchange rates are a few of the instruments that help add stability to trade. Through the use of hedging, speculators have been able to provide a short term security for businesses. In effect, by using puts and calls, businesses are able to buy insurance on their transactions with other countries.