Given the fact that labour markets are still fairly inflexible and that wages and prices are slow to absorb shocks, a floating exchange rate is an important adjustment mechanism for many economies, including Canada's. A market-based exchange rate can be a useful "shock absorber," helping the economy to react to external swings in demand more efficiently than a fixed exchange rate.
Some Asian economies have pursued an export-led growth strategy by fixing the value of their currencies to the U.S. dollar through persistent, sterilized, foreign exchange market intervention. This has resulted in an accumulation of excessive foreign exchange reserves and has exacerbated global imbalances. In theory, there is nothing wrong with countries having fixed nominal exchange rates.