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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
According to an earlier report by Fitch Solutions currency pegs to the dollar will remain in place in Qatar and four other Gulf Co-operation Council (GCC) countries over the coming decade.
Summary: Monetary policy will continue to remain focused on preserving currency pegs
The lower for longer oil price environment has prompted renewed debate in the suitability of the GCC currency pegs. Since the mid-1980s, the Gulf currencies have all been pegged at fixed rates to the US dollar, with the exception of Kuwait which pegs to a basket of currencies.
Tim Fox, head of Research and Chief Economist at Emirates NBD, said the UAE Central bank's move to raise interest rates on Certificates of Deposit is consistent with similar moves in other GCC countries and with the regional currency pegs that exist to the US dollar.
That currency pegs are problematic is, today, a standard assumption
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.
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.
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.S.
"The currency pegs have served these economies well over the last few years and continue to do so at the present time."Aa
"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.