fixed exchange rate

(redirected from Pegged rate)

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 ?
dollar at its pegged rate for the foreseeable future, the Central Bank governor said Tuesday.
The central bank is still providing dollars to local lenders to meet domestic business needs at the pegged rate of QAR3.
This summer, facing liquidity issues and an increasing black market for the naira, the Central Bank of Nigeria floated the currency, also sparking a dramatic depreciation, from the pegged rate of NGN 197/$ to a current low of NGN 365/$.
With a pegged rate, the monetary base contains both domestic and foreign components.
Sweden abandoned the pegged rate in November 1992, obtaining a lasting depreciation of its currency that contributed to a prolonged recovery.
Such regime exerts pressures on Oman's monetary policy framework to maintain the pegged rate and to manage domestic liquidity.
That means that the Swiss will defend the pegged rate of exchange by printing enough francs to offset the inflows of euros.
I would say you should have a unified currency as the best solution, with a floating rate as a second-best solution and a pegged rate as very much worse than either.
At the forefront of such efforts were the gradual steps taken to reduce regulation in foreign exchange market by moving away from a pegged rate system to a flexible rate system.
Forward yuan-dollar exchange rates are consistent with this: The three-month forward rate recently climbed back close to the pegged rate, and the two-year forward rate is now pricing in a 6.
Thus, governments are not prevented from backing out of the pegged rate nor does the pegged rate prevent the exchange rate from collapsing (Sachs, 1999).
Mr Hufner pointed out that the problems of emerging markets and their difficulties such as Mexico (1995), South-East Asia (1997), Russia (1998) and more recently Turkey were more to do with an overly high and pegged rate of the domestic currency to the US Dollar, a poorly supervised banking system and a swift change in investor outlook.