fixed exchange rate

(redirected from Currency peg)

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.
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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 Reuters, the apex bank reiterated the country's commitment to defend its currency peg to the dollar.
It is estimated that Bahrain's net foreign assets will last up to three years which have sparked concerns over whether it will be able to maintain its currency peg to the dollar, according to data by Bloomberg Economics.
Moving away from the currency peg is the latest measure aimed at ameliorating the fiscal and external imbalances caused by lower oil prices since President Joao Lourenco took office in September last year, and follows cabinet approval of a Macroeconomic Stabilization Programme (PEM) in December.
Greg Wilcox LONDON: Saudi Arabia is under no pressure to ditch the currency peg to the dollar thanks to its currency reserves.
But Lebanon's currency peg, unlike those of oil-rich Gulf states, is not backed by huge financial firepower.
China surprised currency traders by announcing it is replacing its decade-long currency peg with a flexible exchange-rate, reports Jennifer Hughes for Financial Times.
It was a time when transparency in the institutional division of labor appears to have been an extremely minor concern, but a stability target for the lira was set and a currency peg to the dollar was gradually implemented.
Due to the currency peg, monetary policy set by the US Federal Reserve has to be imported, Eke said.
When growth is strong and the majority of the country's trade is with the United States, the currency peg holds.
pressure on the country's currency peg to the US dollar.
The currency peg means interest rates must track euro zone rates, leaving fiscal policy as the government's main tool to influence the economy.