fixed exchange rate

(redirected from Pegged currency)

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 ?
2002 -- The Cabinet took a historic decision on making the Kuwaiti Dinar a US Dollar pegged currency starting January 2003.
Analysts in general consider one of the greatest benefits of the pegged currency regime in the GCC is the limited transmission of oil-price volatility into these economies via currency movements.
A pegged currency is not even the preferred plan for a Independent Scotland it is just one of a number of options.
With high levels of government ownership and a pegged currency, the yields carry limited risk, Credit Suisse viewed.
pegged currency, with rock bottom rates prevailing in the United States.
Bulgaria runs a pegged currency system which means its main tool for steering the economy is fiscal policy rather than interest rates, but inflation could turn into a headache for a government struggling to get consumers spending again.
The FCA's analysis of the situation goes beyond the pricing factors to point out what it sees as an even wider-spread effect of the yuan-to-dollar pegged currency situation.
However, in the 12 countries that began 1997 with a floating exchange rate, currency depreciation had a significantly positive effect on stock returns, whereas the effect of depreciation on stock returns was negative and significant for the 13 countries that started the year with a pegged currency.
Barclays Capital Global Emerging Markets Strategy (GEMS) Asia 8 Index[TM]", "Barclays Capital Global Emerging Markets Strategy (GEMS) Pegged Currency Index[TM]" and "Barclays Capital Global Emerging Markets Strategy (GEMS) Index[TM]" are trademarks of Barclays Bank PLC.
From the policymakers' point of view, having a pegged currency reduces uncertainty regarding exports and imports and decreases currency-based volatility.