fixed exchange rate

(redirected from Pegged 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 ?
3 months at end-March, well above the IMF-recommended level of three months for pegged exchange rates.
With managed or pegged exchange rates, a country that does not control its own currency has very limited or no monetary flexibility to affect domestic economic conditions.
2 months at the end of August, well about the IMF-recommended level of three months for pegged exchange rates, said the Gulf Times report.
Inflation is expected to remain contained in most countries, particularly in the GCC, in light of softening global food prices and pegged exchange rates.
In the region, pegged exchange rates in many countries mean that domestic policy rates track international rates.
Finally, they distill lessons for contemporary policy-makers in relation to macroeconomic imbalances between the US and Asia, premature capital account convertibility and pegged exchange rates, global dependence on the dollar, the state versus market debate in managing financial markets, and new policy initiatives by the International Monetary Fund.
It is down by nearly 5 percent since the beginning of 2011, matching the lowest level plumbed since the Bretton Woods System of pegged exchange rates collapsed in 1973.
An extensive literature suggests that both China and India have de facto pegged exchange rates, where policy makers desire to influence the bilateral exchange rate against the USD (Shah et al.
Third, the automatic monetary adjustment mechanism under pegged exchange rates is less likely to operate the weaker and less developed is the economy's banking and financial system.
In January 1973, near the end of the Bretton Woods system of pegged exchange rates, the Swiss National Bank floated the franc.
With the experience of subsequent periods of pegged exchange rates came two additional arguments for flexibility.
The report said growth in the non-oil sector was currently 8%, but most countries were able to contain rising inflation with pegged exchange rates and open product and labour markets alongside low global inflation.