fixed exchange rate

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Fixed exchange rate

A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies.

Fixed Exchange Rate

An exchange rate for a currency where the government has decided to link the value to another currency or to some valuable commodity like gold. For example, under the Bretton Woods System, most world currencies fixed themselves to the U.S. dollar, which in turn fixed itself to gold. A government may fix its currency by holding reserves of the peg (or the asset to which it is fixed) in the central bank. For example, if a country fixes its currency to the British pound, it must hold enough pounds in reserve to account for all of its currency in circulation. Importantly, fixed exchange rates do not change according to market conditions. It is also called a pegged exchange rate.

fixed exchange rate

An exchange rate between currencies that is set by the governments involved rather than being allowed to fluctuate freely with market forces. In order to keep currencies trading at the prescribed levels, government monetary authorities actively enter the currency markets to buy and sell according to variations in supply and demand. Compare floating exchange rate. See also devaluation.
References in periodicals archive ?
We do not expect changes to GCC currency pegs to the dollar despite the oil price outlook being weaker than in previous years.
Bankers in the Gulf do not expect any change in the foreseeable future to the currency pegs, which are not under major market pressure despite the oil price tumble.
Many analysts believe the retail investor-driven panic in the Gulf was overdone because local economies are strong; because of their current account and budget surpluses, and currency pegs to the US dollar, they are much better insulated than most regions from the problems in emerging markets globally.
So far, Gulf policy makers outside Qatar have not echoed Sheikh Abdullah, and GCC countries will not abandon their currency pegs lightly.
Despite recent weakness in the dollar and the move by Standard & Poor's last year to downgrade the US credit rating, the oil-rich Gulf states have refrained from voicing concerns about their currency pegs to the dollar, the currency in which their oil exports are denominated.
Ioften hear GCC central bank governors and policy strategists state that the Gulf's 30-year-old currency pegs to the dollar have served the region well, and that a dollar peg is essential because GCC oil exports are priced in dollars.
The retention of currency pegs to the dollar will also mean it makes sense for the Gulf to leave oil revenues in dollars.
Periods of dollar weakness combined with higher inflation in the Gulf tend to revive questions about the viability of currency pegs to the U.
The currency pegs have served these economies well over the last few years and continue to do so at the present time.
the euro is likely to raise the risk of competitive devaluations of other currency pegs in Central Eastern Europe (CEE), including the currency boards of Estonia, Lithuania and, to a lesser extent, the CBA of Bulgaria.
If the Latvian program collapses, which is still a risk, all three currency boards in the region would probably collapse," says Capital Economics economist Neil Shearing, referring to currency pegs in Lithuania and Estonia.
While they amassed surplus revenues from oil exports while prices were high, Gulf states with currency pegs to the dollar have also suffered from economic upheavals in the US.