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Fixed Exchange Rate
(redirected from Currency Pegs)

   Also found in: Wikipedia 0.01 sec.
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.


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The retention of currency pegs to the dollar will also mean it makes sense for the Gulf to leave oil revenues in dollars.
Flexibility of monetary policy is limited by currency pegs to dollar Dubai Inflation will not be a big issue for the Gulf region despite the sharp decline in the dollar and the potential rise in the liquidity inflow into the region due to the second round of quantitative easing in the US and the UK.
 
 
 
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