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.
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 ?
In short, arguments for a gold standard and pegged exchange rates are deeply flawed.
The thing about African currencies, beside South Africa and Ghana, is that most of them have pegged exchange rates. The central bank intervenes aggres- sively; they're not floating currencies.
All of this will be familiar to anyone who has encountered even a single study of speculative attacks on pegged exchange rates, or to anyone who has had a coffee with an emerging-market central banker.
In a report by MUFG Bank, IMF recommends a minimum of three months of import cover for pegged exchange rates.
However, the expected three Fed hikes (each 25 bps) this year may tighten financial conditions, because of the pegged exchange rates, which could weigh on credit growth.
Import cover rose slightly to 7.3 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.
The latest QNB Monthly Monitor report showed that the import cover stood at 8.2 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. Inflation will remain high in many non-GCC countries," the IMF said.
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.