Fixed Exchange Rate
a.k.a. Fixed rate regime
An exchange rate system where a government holds its currency at a set value against another currency, a…
In plain English
An exchange rate system where a government holds its currency at a set value against another currency, a basket or gold.
Under a fixed exchange rate, the price of a currency is set by policy rather than by the market's daily mood. The central bank defends it by buying or selling currency. See currency peg.
Fixed rates bring predictability, but they tie the country's interest rates to whatever the anchor currency is doing. Most major currencies have floated since the 1970s.
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