Sources of market power

Market power arises from two sources: violence which avoids competition from other market participant and the favor of the people with which the market powerful trades. There is no third source whatsoever.

Simplest way to start a band exchange regime

Technically, a floating exchange rate regime is the optimum.

But guess what: only a blackboard economist without ever going beyond his armchair could see this as a feasible project, at least for starting a new exchange regime coming from, say, a fixed exchange regime.

An option is a gradually stretching-out band.

However, the width as well as the slope of both floor and roof of the band is a very difficult question to ask, and if you do it in the wrong way (read, too fast) either exporters or importers are going to buy lobby for your band experiment to finish.

The key is that everybody gets gradually accustomed to the band.

A practical way of doing this is by just picking a preferably small amount of daily stretching out. I call this amount "rodin" (Spanish for training wheel).

Then each time the market exchange rate touches either the floor or the roof, you stretch out the band (reduce the roof or increase the roof) by the rodin amount.

How is the band to evolve? You don't know beforehand. If it is going to go predominantly down or up, or how fast is going to stretch out, all is a market matter.