fixed exchange rate

(redirected from Fixed exchange rates)

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 ?
The gyrations of currencies since fixed exchange rates were abandoned in 1973 suggest Keynes's proposal still has relevance.
As addressed by McKinnon (Journal of Common Market Studies, 2004), Mundell (The Economics of Common Currencies, 1973) defended the importance of absolutely fixed exchange rates, which secure Ml capital market integration and prevent economies from risk sharing.
The first step it is yet to take is the exchange rate mechanism II (ERM II), a regime of fixed exchange rates in which all EU countries wishing to adopt the euro as their currency must participate.
Using fixed exchange rates and a comparable group structure net sales for the year were up by 5%.
2 million), at fixed exchange rates a decline of 0.
You cannot demand that your workers strive in an unregulated environment when their counterparts are kept on starvation wages and commerce is distorted by fixed exchange rates.
In contrast, Devereux and Engel (2003) illustrated that, if PPP fails because of deviations from the LOP arising from sticky prices in local currency, then fixed exchange rates are optimal even in the presence of country-specific shocks.
In particular, Lahiri, Singh, and Vegh (2007) challenge the standard Mundell-Fleming prescription by showing that in presence of segmented asset markets, floating exchange rate regimes perform better than fixed exchange rates when shocks are real and vice versa when shocks originate in the money market.
Countries implementing fixed exchange rates regime had been affected more by economic crisis than countries which implemented floating exchange rates regime, he said.
But with most other countries moving away from fixed exchange rates, the issue of an adequate policy framework to ensure the sustainability of the zone is of interest to policymakers and academics.
Expectations that Gulf countries will reform fixed exchange rates has mounted in the past week after the UAE central bank governor said he could track a basket of currencies in concert with Gulf neighbours to help contain inflation.
The overriding "free-trade" motivation is made clear when Friedman discusses the sterling area: "In principle there is no objection to a mixed system of fixed exchange rates within the sterling area and freely flexible rates between sterling and other countries, provided that the fixed rates within the sterling area can be maintained without trade restrictions" (Friedman 1953: 193).