The Policy Trilemma
A country can lock in at most two of these three goals at once. Switch on the two you want and see which one you are forced to give up.
Switch on the two goals you want
THE COST OF PICKING TWO
You must let the currency float: with free capital and a free interest rate, the market sets the exchange rate.
e.g. United States, Australia
Try this — switch between the three real-world regimes
Reflection: the eurozone fixes exchange rates between members and allows free capital, so each member gives up its own monetary policy to the ECB. Which corner did your country choose, and what did it pay to keep the other two?