A dirty float, also called a managed float, is an exchange rate system where a currency’s value is primarily determined by market forces, but the central bank occasionally intervenes to influence its movement. Unlike a clean float, where supply and demand alone set the exchange rate, a dirty float allows authorities to step in when they believe the currency is moving too far in one direction or too quickly.

Intervention can be done by directly buying or selling the currency in the forex market or through monetary policies that affect interest rates and capital flows. For example, if a country’s currency is depreciating rapidly, the central bank might buy its own currency to stabilise it. On the other hand, if the currency appreciates too much and hurts exports, the bank might sell it to bring the value down.

The system provides a balance between flexibility and control. It avoids the rigidity of a fixed exchange rate while reducing the uncertainty of a pure floating rate. However, critics argue that it can create opacity since markets may not always know when or how much a government will intervene, leading to speculation and potential instability.