Fixed exchange rate

A fixed exchange rate is a currency price that a government or central bank maintains at a target value, often against another currency or a basket of currencies.

Foreign exchange intervention: Central-bank purchases or sales of currencies intended to influence exchange rates. A central bank can buy or sell currencies to keep the market rate near its target.
Exchange rate: The price of one currency expressed in another currency. A fixed rate is one way of determining how this currency price behaves.
Floating exchange rate: An exchange rate whose value is determined primarily by currency-market supply and demand. Unlike a fixed rate, a float can adjust without authorities defending a target.
Impossible trinity: The proposition that a country cannot simultaneously maintain a fixed exchange rate, free capital movement, and independent monetary policy. It states the central policy trade-off faced by governments maintaining a fixed rate.
Bretton Woods system: The postwar international monetary system of pegged currencies centered on the US dollar, convertible into gold for official holders. It was a prominent international network of fixed exchange rates.
Foreign exchange reserves: Assets held by monetary authorities in foreign currencies, gold, and other reserve forms. Reserves finance intervention when demand pushes the currency away from its peg.
Foreign exchange market: A global network where currencies are traded and their prices are established. The market price may diverge from the official target unless policy keeps them aligned.
Managed float: An exchange-rate system in which market forces set the rate but authorities sometimes intervene. It permits intervention without committing to a specific fixed value.
Devaluation: An official reduction in a currency's value under a fixed or managed exchange-rate system. Authorities can reset a fixed target downward when defending the old rate becomes untenable.
European Exchange Rate Mechanism: A European Community arrangement that limited exchange-rate fluctuations among participating currencies. Its bands constrained currency movements while allowing limited variation around central rates.

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