Fixed Exchange-rate System
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Fixed exchange-rate system
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a
currency's value is fixed against either the value of another single currency, to a basket of other currencies, or
to another measure of value, such as gold. There are benefits and risks to using a fixed exchange rate. A fixed exchange rate is usually used in order to stabilize the value
of a currency by directly fixing its value in a predetermined ratio to a different, more stable or more internationally prevalent currency (or currencies), to which the
value is pegged. In doing so, the exchange rate between
the currency and its peg does not change based on market conditions, the way floating currencies will do. This
makes trade and investments between the two currency
areas easier and more predictable, and is especially useful for small economies in which external trade forms a
large part of their GDP.
tries joining the Eurozone.
In a fixed exchange-rate system, a country’s central bank
typically uses an open market mechanism and is committed at all times to buy and/or sell its currency at a fixed
price in order to maintain its pegged ratio and, hence, the
stable value of its currency in relation to the reference
to which it is pegged. The central bank provides the assets and/or the foreign currency or currencies which are
needed in order to finance any payments imbalances.[1]
quantities of gold at the fixed price. Each central bank
maintained gold reserves as their official reserve asset.[7]
For example, during the “classical” gold standard period
(1879–1914), the U.S. dollar was defined as 0.048 troy
oz. of pure gold.[8]
In the 21st century, the currencies associated with large
economies typically do not fix or peg exchange rates to
other currencies. The last large economy to use a fixed
exchange rate system was the People’s Republic of China
which, in July 2005, adopted a slightly more flexible exchange rate system called a managed exchange rate.[2]
The European Exchange Rate Mechanism is also used
on a temporary basis to establish a final conversion rate
against the Euro (€) from the local currencies of coun-
Following the Second World War, the Bretton Woods system (1944–1973) replaced gold with the U.S. dollar as
the official reserve asset. The regime intended to combine binding legal obligations with multilateral decisionmaking through the International Monetary Fund (IMF).
The rules of this system were set forth in the articles of
agreement of the IMF and the International Bank for Reconstruction and Development. The system was a monetary order intended to govern currency relations among
1 History
Main article: International monetary systems
The gold standard or gold exchange standard of fixed
exchange rates prevailed from about 1870 to 1914, before which many countries followed bimetallism.[3] The
period between the two world wars was transitory, with
the Bretton Woods system emerging as the new fixed exchange rate regime in the aftermath of World War II. It
was formed with an intent to rebuild war-ravaged nations
after World War II through a series of currency stabilization programs and infrastructure loans.[4] The early 1970s
saw the breakdown of the system and its replacement by
A fixed exchange-rate system can also be used as a means
a mixture of fluctuating and fixed exchange rates.[5]
to control the behavior of a currency, such as by limiting
rates of inflation. However, in doing so, the pegged currency is then controlled by its reference value. As such,
1.1 Chronology
when the reference value rises or falls, it then follows
that the value(s) of any currencies pegged to it will also
Timeline of the fixed exchange rate system:[6]
rise and fall in relation to other currencies and commodities with which the pegged currency can be traded. In
other words, a pegged currency is dependent on its refer- 1.2 Gold standard
ence value to dictate how its current worth is defined at
any given time. In addition, according to the Mundell– The earliest establishment of a gold standard was in the
Fleming model, with perfect capital mobility, a fixed ex- United Kingdom in 1821 followed by Australia in 1852
change rate prevents a government from using domestic and Canada in 1853. Under this system, the extermonetary policy in order to achieve macroeconomic sta- nal value of all currencies was denominated in terms of
bility.
gold with central banks ready to buy and sell unlimited
1.3 Bretton Woods system
1
2
3
sovereign states, with the 44 member countries required
to establish a parity of their national currencies in terms
of the U.S. dollar and to maintain exchange rates within
1% of parity (a "band") by intervening in their foreign exchange markets (that is, buying or selling foreign money).
The U.S. dollar was the only currency strong enough to
meet the rising demands for international currency transactions, and so the United States agreed both to link the
dollar to gold at the rate of $35 per ounce of gold and to
convert dollars into gold at that price.[6]
Due to concerns about America’s rapidly deteriorating
payments situation and massive flight of liquid capital
from the U.S., President Richard Nixon suspended the
convertibility of the dollar into gold on 15 August 1971.
In December 1971, the Smithsonian Agreement paved
the way for the increase in the value of the dollar price
of gold from US$35.50 to US$38 an ounce. Speculation
against the dollar in March 1973 led to the birth of the independent float, thus effectively terminating the Bretton
Woods system.[6]
1.4
OPEN MARKET MECHANISM EXAMPLE
countries are highly successful at using this method due to
government monopolies over all money conversion. This
was the method employed by the Chinese government to
maintain a currency peg or tightly banded float against the
US dollar. Throughout the 1990s, China was highly successful at maintaining a currency peg using a government
monopoly over all currency conversion between the yuan
and other currencies.[10][11]
3 Open market mechanism example
Current monetary regimes
Since March 1973, the floating exchange rate has been
followed and formally recognized by the Jamaica accord
of 1978. Countries still need international reserves in order to intervene in foreign exchange markets to balance
short-run fluctuations in exchange rates.[6] The prevailing exchange rate regime is in fact often considered as Fig.1: Mechanism of fixed exchange-rate system
a revival of the Bretton Woods policies, namely Bretton
Under this system, the central bank first announces a fixed
Woods II.[9]
exchange-rate for the currency and then agrees to buy and
sell the domestic currency at this value. The market equilibrium exchange rate is the rate at which supply and de2 Mechanisms
mand will be equal, i.e., markets will clear. In a flexible exchange rate system, this is the spot rate. In a fixed
2.1 Open market trading
exchange-rate system, the pre-announced rate may not
coincide with the market equilibrium exchange rate. The
Typically, a government wanting to maintain a fixed ex- foreign central banks maintain reserves of foreign currenchange rate does so by either buying or selling its own cies and gold which they can sell in order to intervene in
currency on the open market. This is one reason govern- the foreign exchange market to make up the excess dements maintain reserves of foreign currencies. If the ex- mand or take up the excess supply [1]
change rate drifts too far below the fixed benchmark rate,
the government buys its own currency in the market using The demand for foreign exchange is derived from the doits reserves. This places greater demand on the market mestic demand for foreign goods, services, and financial
and pushes up the price of the currency. If the exchange assets. The supply of foreign exchange is similarly derate drifts too far above the desired rate, the government rived from the foreign demand for goods, services, and
sells its own currency, and buys foreign currency, thus re- financial assets coming from the home country. Fixed
ducing the pressure on demand, and its foreign reserves exchange-rates are not permitted to fluctuate freely or respond to daily changes in demand and supply. The govfall.
ernment fixes the exchange value of the currency. For
example, the European Central Bank (ECB) may fix its
exchange rate at €1 = $1 (assuming that the euro follows
2.2 Fiat
the fixed exchange-rate). This is the central value or par
Another, less used means of maintaining a fixed exchange value of the euro. Upper and lower limits for the moverate is by simply making it illegal to trade currency at any ment of the currency are imposed, beyond which variaother rate. This is difficult to enforce and often leads to tions in the exchange rate are not permitted. The “band”
a black market in foreign currency. Nonetheless, some or “spread” in Fig.1 is €0.4 (from €1.2 to €0.8).[12]
3
3.1
Excess demand for dollars
within the band. Under a floating exchange rate system,
equilibrium would again have been achieved at e.
When the ECB buys dollars in this manner, its official
dollar reserves increase and domestic money supply expands, which may lead to inflation. To prevent this, the
ECB may sell government bonds and thus counter the rise
in money supply.
When the ECB starts accumulating excess reserves, it
may also revalue the euro in order to reduce the excess
supply of dollars, i.e., narrow the gap between the equilibrium and fixed rates. This is the opposite of devaluation.
Fig.2: Excess demand for dollars
Fig.2 describes the excess demand for dollars. This is a
situation where domestic demand for foreign goods, services, and financial assets exceeds the foreign demand for
goods, services, and financial assets from the European
Union. If the demand for dollar rises from DD to D'D',
excess demand is created to the extent of cd. The ECB
will sell cd dollars in exchange for euros to maintain the
limit within the band. Under a floating exchange rate system, equilibrium would have been achieved at e.
When the ECB sells dollars in this manner, its official dollar reserves decline and domestic money supply shrinks.
To prevent this, the ECB may purchase government
bonds and thus meet the shortfall in money supply. This
is called sterilized intervention in the foreign exchange
market. When the ECB starts running out of reserves,
it may also devalue the euro in order to reduce the excess demand for dollars, i.e., narrow the gap between the
equilibrium and fixed rates.
3.2
Excess supply of dollars
4 Types of fixed exchange rate systems
4.1 The gold standard
Under the gold standard, a country’s government declares
that it will exchange its currency for a certain weight in
gold. In a pure gold standard, a country’s government declares that it will freely exchange currency for actual gold
at the designated exchange rate. This “rule of exchange”
allows anyone to go the central bank and exchange coins
or currency for pure gold or vice versa. The gold standard
works on the assumption that there are no restrictions on
capital movements or export of gold by private citizens
across countries.
Because the central bank must always be prepared to give
out gold in exchange for coin and currency upon demand,
it must maintain gold reserves. Thus, this system ensures
that the exchange rate between currencies remains fixed.
For example, under this standard, a £1 gold coin in the
United Kingdom contained 113.0016 grains of pure gold,
while a $1 gold coin in the United States contained 23.22
grains. The mint parity or the exchange rate was thus: R
= $/£ = 113.0016/23.22 = 4.87.[6] The main argument in
favor of the gold standard is that it ties the world price
level to the world supply of gold, thus preventing inflation
unless there is a gold discovery (a gold rush, for example).
4.2 Price specie flow mechanism
The automatic adjustment mechanism under the gold
standard is the price specie flow mechanism, which operates so as to correct any balance of payments disequilibrium and adjust to shocks or changes. This mechaFig.3: Excess supply of dollars
nism was originally introduced by Richard Cantillon and
later discussed by David Hume in 1752 to refute the
Fig.3 describes the excess supply of dollars. This is a sitmercantilist doctrines and emphasize that nations could
uation where the foreign demand for goods, services, and
not continuously accumulate gold by exporting more than
financial assets from the European Union exceeds the Eutheir imports.
ropean demand for foreign goods, services, and financial
assets. If the supply of dollars rises from SS to S'S', ex- The assumptions of this mechanism are:
cess supply is created to the extent of ab. The ECB will
1. Prices are flexible
buy ab dollars in exchange for euros to maintain the limit
4
5 HYBRID EXCHANGE RATE SYSTEMS
2. All transactions take place in gold
• Argentina (1991 to 2001);
3. There is a fixed supply of gold in the world
• Estonia (1992 to 2010);
4. Gold coins are minted at a fixed parity in each country
• Lithuania (1994 to 2014);
5. There are no banks and no capital flows
• Bulgaria (since 1997);
Adjustment under a gold standard involves the flow of
gold between countries resulting in equalization of prices
satisfying purchasing power parity, and/or equalization of
rates of return on assets satisfying interest rate parity at
the current fixed exchange rate. Under the gold standard,
each country’s money supply consisted of either gold or
paper currency backed by gold. Money supply would
hence fall in the deficit nation and rise in the surplus nation. Consequently, internal prices would fall in the deficit
nation and rise in the surplus nation, making the exports
of the deficit nation more competitive than those of the
surplus nations. The deficit nation’s exports would be encouraged and the imports would be discouraged till the
deficit in the balance of payments was eliminated.[13]
In brief:
Deficit nation: Lower money supply → Lower internal
prices → More exports, less imports → Elimination of
deficit
Surplus nation: Higher money supply → Higher internal
prices → Less exports, more imports → Elimination of
surplus
4.3
Reserve currency standard
In a reserve currency system, the currency of another
country performs the functions that gold has in a gold
standard. A country fixes its own currency value to a unit
of another country’s currency, generally a currency that
is prominently used in international transactions or is the
currency of a major trading partner. For example, suppose India decided to fix its currency to the dollar at the
exchange rate E₹/$ = 45.0. To maintain this fixed exchange rate, the Reserve Bank of India would need to
hold dollars on reserve and stand ready to exchange rupees for dollars (or dollars for rupees) on demand at the
specified exchange rate. In the gold standard the central
bank held gold to exchange for its own currency, with a
reserve currency standard it must hold a stock of the reserve currency.
Currency board arrangements are the most widespread
means of fixed exchange rates. Under this, a nation rigidly
pegs its currency to a foreign currency, special drawing
rights (SDR) or a basket of currencies. The central bank’s
role in the country’s monetary policy is therefore minimal.
CBAs have been operational in many nations like
• Hong Kong (since 1983);
• Bosnia and Herzegovina (since 1997);
• Bermuda (since 1972);
• Denmark (since 1945);
• Brunei (since 1967) [14]
4.4 Gold exchange standard
The fixed exchange rate system set up after World War
II was a gold-exchange standard, as was the system that
prevailed between 1920 and the early 1930s.[15] A gold
exchange standard is a mixture of a reserve currency standard and a gold standard. Its characteristics are as follows:
• All non-reserve countries agree to fix their exchange
rates to the chosen reserve at some announced rate
and hold a stock of reserve currency assets.
• The reserve currency country fixes its currency value
to a fixed weight in gold and agrees to exchange on
demand its own currency for gold with other central
banks within the system, upon demand.
Unlike the gold standard, the central bank of the reserve
country does not exchange gold for currency with the general public, only with other central banks.
5 Hybrid exchange rate systems
The current state of foreign exchange markets does not
allow for the rigid system of fixed exchange rates. At the
same time, freely floating exchange rates expose a country to volatility in exchange rates. Hybrid exchange rate
systems have evolved in order to combine the characteristics features of fixed and flexible exchange rate systems.
They allow fluctuation of the exchange rates without completely exposing the currency to the flexibility of a free
float.
5.1 Basket-of-currencies
Countries often have several important trading partners
or are apprehensive of a particular currency being too
volatile over an extended period of time. They can thus
choose to peg their currency to a weighted average of several currencies (also known as a currency basket) . For
example, a composite currency may be created consisting
5.5
Dollarization/Euroization
of hundred rupees, 100 Japanese yen and one U.S. dollar the country creating this composite would then need
to maintain reserves in one or more of these currencies
to satisfy excess demand or supply of its currency in the
foreign exchange market.
5
5.5 Dollarization/Euroization
This is the most extreme and rigid manner of fixing exchange rates as it entails adopting the currency of another
country in place of its own. The most prominent example
is the eurozone, where 19 European Union (EU) member
A popular and widely used composite currency is the
states have adopted the euro (€) as their common curSDR, which is a composite currency created by the
rency. Their exchange rates are effectively fixed to each
International Monetary Fund (IMF), consisting of a fixed
other.
quantity of U.S. dollars, euros, Japanese yen, and British
There are similar examples of countries adopting the U.S.
pounds.
dollar as their domestic currency: British Virgin Islands,
Caribbean Netherlands, East Timor, Ecuador, El Salvador, Marshall Islands, Federated States of Micronesia,
5.2 Crawling pegs
Palau, Panama, and the Turks and Caicos Islands.
In a crawling peg system a country fixes its exchange rate (See ISO 4217 for a complete list of territories by curto another currency or basket of currencies. This fixed rency.)
rate is changed from time to time at periodic intervals
with a view to eliminating exchange rate volatility to some
extent without imposing the constraint of a fixed rate. 6 Advantages
Crawling pegs are adjusted gradually, thus avoiding the
need for interventions by the central bank (though it may
• A fixed exchange rate may minimize instabilities in
still choose to do so in order to maintain the fixed rate in
real economic activity[16]
the event of excessive fluctuations).
• Central banks can acquire credibility by fixing their
country’s currency to that of a more disciplined nation [16]
5.3 Pegged within a band
A currency is said to be pegged within a band when the
central bank specifies a central exchange rate with reference to a single currency, a cooperative arrangement, or a
currency composite. It also specifies a percentage allowable deviation on both sides of this central rate. Depending on the band width, the central bank has discretion in
carrying out its monetary policy. The band itself may be
a crawling one, which implies that the central rate is adjusted periodically. Bands may be symmetrically maintained around a crawling central parity (with the band
moving in the same direction as this parity does). Alternatively, the band may be allowed to widen gradually
without any pre-announced central rate.
5.4
Currency boards
• On a microeconomic level, a country with poorly developed or illiquid money markets may fix their exchange rates to provide its residents with a synthetic
money market with the liquidity of the markets of
the country that provides the vehicle currency[16]
• A fixed exchange rate reduces volatility and fluctuations in relative prices
• It eliminates exchange rate risk by reducing the associated uncertainty
• It imposes discipline on the monetary authority
• International trade and investment flows between
countries are facilitated
• Speculation in the currency markets is likely to be
less destabilizing under a fixed exchange rate system
than it is in a flexible one, since it does not amplify
fluctuations resulting from business cycles
A currency board (also known as 'linked exchange rate
system”) effectively replaces the central bank through a
• Fixed exchange rates impose a price discipline on
legislation to fix the currency to that of another country.
nations with higher inflation rates than the rest of
The domestic currency remains perpetually exchangeable
the world, as such a nation is likely to face persisfor the reserve currency at the fixed exchange rate. As the
tent deficits in its balance of payments and loss of
anchor currency is now the basis for movements of the
reserves [6]
domestic currency, the interest rates and inflation in the
domestic economy would be greatly influenced by those
of the foreign economy to which the domestic currency is
tied. The currency board needs to ensure the maintenance 7 Disadvantages
of adequate reserves of the anchor currency. It is a step
away from officially adopting the anchor currency (termed The main criticism of a fixed exchange rate is that flexias dollarization or euroization).
ble exchange rates serve to adjust the balance of trade.[17]
6
10
When a trade deficit occurs under a floating exchange
rate, there will be increased demand for the foreign
(rather than domestic) currency which will push up the
price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less
attractive to the domestic market and thus pushes down
the trade deficit. Under fixed exchange rates, this automatic rebalancing does not occur.
REFERENCES
8 Fixed exchange rate regime versus capital control
The belief that the fixed exchange rate regime brings
with it stability is only partly true, since speculative attacks tend to target currencies with fixed exchange rate
regimes, and in fact, the stability of the economic system
is maintained mainly through capital control. A fixed exGovernments also have to invest many resources in get- change rate regime should be viewed as a tool in capital
ting the foreign reserves to pile up in order to defend the control.
pegged exchange rate. Moreover, a government, when
having a fixed rather than dynamic exchange rate, cannot use monetary or fiscal policies with a free hand. For
instance, by using reflationary tools to set the economy 9 See also
rolling (by decreasing taxes and injecting more money in
• Category:Fixed exchange rate (lists currently
the market), the government risks running into a trade
pegged currencies)
deficit. This might occur as the purchasing power of a
common household increases along with inflation, thus
• Exchange rate regime
making imports relatively cheaper.
• Floating exchange rate
Additionally, the stubbornness of a government in defending a fixed exchange rate when in a trade deficit will
force it to use deflationary measures (increased taxation
and reduced availability of money), which can lead to
unemployment. Finally, other countries with a fixed exchange rate can also retaliate in response to a certain
country using the currency of theirs in defending their
exchange rate.
Other noted disadvantages:
• Linked exchange rate
• Managed float regime
• Gold standard
• Bretton Woods system
• Nixon Shock
• Smithsonian Agreement
• The need for a fixed exchange rate regime is challenged by the emergence of sophisticated derivatives
and financial tools in recent years, which allow firms
to hedge exchange rate fluctuations
• The announced exchange rate may not coincide with
the market equilibrium exchange rate, thus leading
to excess demand or excess supply
• Foreign exchange fixing
• Currency union
• Black Wednesday
• Capital control
• Convertibility
• The central bank needs to hold stocks of both foreign and domestic currencies at all times in order to
adjust and maintain exchange rates and absorb the
excess demand or supply
• Currency board
• Fixed exchange rate does not allow for automatic
correction of imbalances in the nation’s balance
of payments since the currency cannot appreciate/depreciate as dictated by the market
• Swan diagram
• Impossible trinity
• Speculative attack
10 References
• It fails to identify the degree of comparative advantage or disadvantage of the nation and may lead
to inefficient allocation of resources throughout the
world
[1] Dornbusch, Rüdiger; Fisher, Stanley; Startz, Richard
(2011). Macroeconomics (Eleventh ed.). New York:
McGraw-Hill/Irwin. ISBN 978-0-07-337592-2.
• There exists the possibility of policy delays and mistakes in achieving external balance
[2] Goodman, Peter S. (2005-07-22). “China Ends FixedRate Currency”. Washington Post. Retrieved 2010-0506.
• The cost of government intervention is imposed
upon the foreign exchange market [6]
[3] Bordo, Michael D.; Christl, Josef; Just, Christian; James,
Harold (2004). OENB Working Paper (no. 92) (PDF).
11.1
News articles
7
[4] Cohen, Benjamin J, “Bretton Woods System”, Routledge
Encyclopedia of International Political Economy
4. http://people.ucsc.edu/~{}mpd/
InternationalFinancialStability_update.pdf
[5] Kreinin, Mordechai (2010). International Economics: A
Policy Approach. Pearson Learning Solutions. p. 438.
ISBN 0-558-58883-2.
5. http://www.polsci.ucsb.edu/faculty/cohen/inpress/
bretton.html
[6] Salvatore, Dominick (2004). International Economics.
John Wiley & Sons. ISBN 978-81-265-1413-7.
6. http://www.imf.org/external/pubs/ft/issues13/
index.htm
[7] Bordo, Michael (1999). Gold Standard and Related
Regimes: Collected Essays. Cambridge University Press.
ISBN 0-521-55006-8.
[8] White, Lawrence. Is the Gold Standard Still the Gold Standard among Monetary Systems?, CATO Institute Briefing
Paper no. 100, 8 Feb 2008
[9] Dooley, M.; Folkerts-Landau, D.; Garber, P. (2009).
“Bretton Woods Ii Still Defines the International Monetary System”. Pacific Economic Review 14 (3): 297–311.
doi:10.1111/j.1468-0106.2009.00453.x.
[10] Goodman, Peter S. (2005-07-27). “Don't Expect Yuan To
Rise Much, China Tells World”. Washington Post. Retrieved 2010-05-06.
7. http://www.imf.org/external/pubs/ft/issues/
issues38/ei38.pdf
8. http://www.cato.org/pubs/bp/bp100.pdf
9. http://econ.la.psu.edu/~{}bickes/goldstd.pdf
10. Exchange Rate Regimes Past, Present and Future at
the Wayback Machine (archived April 11, 2010)
11. Reinhart, C. M.; Rogoff, K. S. (2004).
“The Modern History of Exchange Rate Arrangements: A Reinterpretation”.
Quarterly
Journal of Economics 119 (1):
1–48.
doi:10.1162/003355304772839515.
[11] Griswold, Daniel (2005-06-25). “Protectionism No Fix
for China’s Currency”. Cato Institute. Retrieved 201005-06.
12. Exchange Rate Regimes and International Reserves
at the Wayback Machine (archived July 26, 2011)
[12] O'Connell, Joan (1968). “An International Adjustment
Mechanism with Fixed Exchange Rates”. Economica
35 (139): 274–282. doi:10.2307/2552303. JSTOR
2552303.
11.1 News articles
[13] Cooper, R.N. (1969). International Finance. Penguin
Publishers. pp. 25–37.
[14] Salvatore, Dominick; Dean, J; Willett,T. The Dollarisation Debate (Oxford University Press, 2003)
[15] Bordo, M. D.; MacDonald, R. (2003). “The inter-war
gold exchange standard: Credibility and monetary independence”. Journal of International Money and Finance
22: 1. doi:10.1016/S0261-5606(02)00074-8.
[16] Garber, Peter M.; Svensson, Lars E. O. (1995). “The Operation and Collapse of Fixed Exchange Rate Regimes”.
Handbook of International Economics 3. Elsevier. pp.
1865–1911. doi:10.1016/S1573-4404(05)80016-4.
[17] Suranovic, Steven (2008-02-14). International Finance
Theory and Policy. Palgrave Macmillan. p. 504.
11
External links
1. http://internationalecon.com/Finance/Fch80/
F80-1.php
2. http://www.wellesley.edu/Economics/weerapana/
econ213/econ213pdf/lect213-05.pdf
3. Gavin, F. J. (2002). “The Gold Battles within the
Cold War: American Monetary Policy and the Defense of Europe, 1960–1963”. Diplomatic History
26 (1): 61–94. doi:10.1111/1467-7709.00300.
1. http://www.washingtonpost.com/wp-dyn/content/
article/2005/07/26/AR2005072600681.html
2. http://www.forexrealm.com/forex-analytics/
exchange-rates/exchange-rate-regimes.html
3. http://www.gold-eagle.com/greenspan011098.
html
4. http://www.washingtonpost.com/wp-dyn/content/
article/2005/07/21/AR2005072100351.html
8
12
12
12.1
TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES
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12.3
Content license
• Creative Commons Attribution-Share Alike 3.0
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a
currency's value is fixed against either the value of another single currency, to a basket of other currencies, or
to another measure of value, such as gold. There are benefits and risks to using a fixed exchange rate. A fixed exchange rate is usually used in order to stabilize the value
of a currency by directly fixing its value in a predetermined ratio to a different, more stable or more internationally prevalent currency (or currencies), to which the
value is pegged. In doing so, the exchange rate between
the currency and its peg does not change based on market conditions, the way floating currencies will do. This
makes trade and investments between the two currency
areas easier and more predictable, and is especially useful for small economies in which external trade forms a
large part of their GDP.
tries joining the Eurozone.
In a fixed exchange-rate system, a country’s central bank
typically uses an open market mechanism and is committed at all times to buy and/or sell its currency at a fixed
price in order to maintain its pegged ratio and, hence, the
stable value of its currency in relation to the reference
to which it is pegged. The central bank provides the assets and/or the foreign currency or currencies which are
needed in order to finance any payments imbalances.[1]
quantities of gold at the fixed price. Each central bank
maintained gold reserves as their official reserve asset.[7]
For example, during the “classical” gold standard period
(1879–1914), the U.S. dollar was defined as 0.048 troy
oz. of pure gold.[8]
In the 21st century, the currencies associated with large
economies typically do not fix or peg exchange rates to
other currencies. The last large economy to use a fixed
exchange rate system was the People’s Republic of China
which, in July 2005, adopted a slightly more flexible exchange rate system called a managed exchange rate.[2]
The European Exchange Rate Mechanism is also used
on a temporary basis to establish a final conversion rate
against the Euro (€) from the local currencies of coun-
Following the Second World War, the Bretton Woods system (1944–1973) replaced gold with the U.S. dollar as
the official reserve asset. The regime intended to combine binding legal obligations with multilateral decisionmaking through the International Monetary Fund (IMF).
The rules of this system were set forth in the articles of
agreement of the IMF and the International Bank for Reconstruction and Development. The system was a monetary order intended to govern currency relations among
1 History
Main article: International monetary systems
The gold standard or gold exchange standard of fixed
exchange rates prevailed from about 1870 to 1914, before which many countries followed bimetallism.[3] The
period between the two world wars was transitory, with
the Bretton Woods system emerging as the new fixed exchange rate regime in the aftermath of World War II. It
was formed with an intent to rebuild war-ravaged nations
after World War II through a series of currency stabilization programs and infrastructure loans.[4] The early 1970s
saw the breakdown of the system and its replacement by
A fixed exchange-rate system can also be used as a means
a mixture of fluctuating and fixed exchange rates.[5]
to control the behavior of a currency, such as by limiting
rates of inflation. However, in doing so, the pegged currency is then controlled by its reference value. As such,
1.1 Chronology
when the reference value rises or falls, it then follows
that the value(s) of any currencies pegged to it will also
Timeline of the fixed exchange rate system:[6]
rise and fall in relation to other currencies and commodities with which the pegged currency can be traded. In
other words, a pegged currency is dependent on its refer- 1.2 Gold standard
ence value to dictate how its current worth is defined at
any given time. In addition, according to the Mundell– The earliest establishment of a gold standard was in the
Fleming model, with perfect capital mobility, a fixed ex- United Kingdom in 1821 followed by Australia in 1852
change rate prevents a government from using domestic and Canada in 1853. Under this system, the extermonetary policy in order to achieve macroeconomic sta- nal value of all currencies was denominated in terms of
bility.
gold with central banks ready to buy and sell unlimited
1.3 Bretton Woods system
1
2
3
sovereign states, with the 44 member countries required
to establish a parity of their national currencies in terms
of the U.S. dollar and to maintain exchange rates within
1% of parity (a "band") by intervening in their foreign exchange markets (that is, buying or selling foreign money).
The U.S. dollar was the only currency strong enough to
meet the rising demands for international currency transactions, and so the United States agreed both to link the
dollar to gold at the rate of $35 per ounce of gold and to
convert dollars into gold at that price.[6]
Due to concerns about America’s rapidly deteriorating
payments situation and massive flight of liquid capital
from the U.S., President Richard Nixon suspended the
convertibility of the dollar into gold on 15 August 1971.
In December 1971, the Smithsonian Agreement paved
the way for the increase in the value of the dollar price
of gold from US$35.50 to US$38 an ounce. Speculation
against the dollar in March 1973 led to the birth of the independent float, thus effectively terminating the Bretton
Woods system.[6]
1.4
OPEN MARKET MECHANISM EXAMPLE
countries are highly successful at using this method due to
government monopolies over all money conversion. This
was the method employed by the Chinese government to
maintain a currency peg or tightly banded float against the
US dollar. Throughout the 1990s, China was highly successful at maintaining a currency peg using a government
monopoly over all currency conversion between the yuan
and other currencies.[10][11]
3 Open market mechanism example
Current monetary regimes
Since March 1973, the floating exchange rate has been
followed and formally recognized by the Jamaica accord
of 1978. Countries still need international reserves in order to intervene in foreign exchange markets to balance
short-run fluctuations in exchange rates.[6] The prevailing exchange rate regime is in fact often considered as Fig.1: Mechanism of fixed exchange-rate system
a revival of the Bretton Woods policies, namely Bretton
Under this system, the central bank first announces a fixed
Woods II.[9]
exchange-rate for the currency and then agrees to buy and
sell the domestic currency at this value. The market equilibrium exchange rate is the rate at which supply and de2 Mechanisms
mand will be equal, i.e., markets will clear. In a flexible exchange rate system, this is the spot rate. In a fixed
2.1 Open market trading
exchange-rate system, the pre-announced rate may not
coincide with the market equilibrium exchange rate. The
Typically, a government wanting to maintain a fixed ex- foreign central banks maintain reserves of foreign currenchange rate does so by either buying or selling its own cies and gold which they can sell in order to intervene in
currency on the open market. This is one reason govern- the foreign exchange market to make up the excess dements maintain reserves of foreign currencies. If the ex- mand or take up the excess supply [1]
change rate drifts too far below the fixed benchmark rate,
the government buys its own currency in the market using The demand for foreign exchange is derived from the doits reserves. This places greater demand on the market mestic demand for foreign goods, services, and financial
and pushes up the price of the currency. If the exchange assets. The supply of foreign exchange is similarly derate drifts too far above the desired rate, the government rived from the foreign demand for goods, services, and
sells its own currency, and buys foreign currency, thus re- financial assets coming from the home country. Fixed
ducing the pressure on demand, and its foreign reserves exchange-rates are not permitted to fluctuate freely or respond to daily changes in demand and supply. The govfall.
ernment fixes the exchange value of the currency. For
example, the European Central Bank (ECB) may fix its
exchange rate at €1 = $1 (assuming that the euro follows
2.2 Fiat
the fixed exchange-rate). This is the central value or par
Another, less used means of maintaining a fixed exchange value of the euro. Upper and lower limits for the moverate is by simply making it illegal to trade currency at any ment of the currency are imposed, beyond which variaother rate. This is difficult to enforce and often leads to tions in the exchange rate are not permitted. The “band”
a black market in foreign currency. Nonetheless, some or “spread” in Fig.1 is €0.4 (from €1.2 to €0.8).[12]
3
3.1
Excess demand for dollars
within the band. Under a floating exchange rate system,
equilibrium would again have been achieved at e.
When the ECB buys dollars in this manner, its official
dollar reserves increase and domestic money supply expands, which may lead to inflation. To prevent this, the
ECB may sell government bonds and thus counter the rise
in money supply.
When the ECB starts accumulating excess reserves, it
may also revalue the euro in order to reduce the excess
supply of dollars, i.e., narrow the gap between the equilibrium and fixed rates. This is the opposite of devaluation.
Fig.2: Excess demand for dollars
Fig.2 describes the excess demand for dollars. This is a
situation where domestic demand for foreign goods, services, and financial assets exceeds the foreign demand for
goods, services, and financial assets from the European
Union. If the demand for dollar rises from DD to D'D',
excess demand is created to the extent of cd. The ECB
will sell cd dollars in exchange for euros to maintain the
limit within the band. Under a floating exchange rate system, equilibrium would have been achieved at e.
When the ECB sells dollars in this manner, its official dollar reserves decline and domestic money supply shrinks.
To prevent this, the ECB may purchase government
bonds and thus meet the shortfall in money supply. This
is called sterilized intervention in the foreign exchange
market. When the ECB starts running out of reserves,
it may also devalue the euro in order to reduce the excess demand for dollars, i.e., narrow the gap between the
equilibrium and fixed rates.
3.2
Excess supply of dollars
4 Types of fixed exchange rate systems
4.1 The gold standard
Under the gold standard, a country’s government declares
that it will exchange its currency for a certain weight in
gold. In a pure gold standard, a country’s government declares that it will freely exchange currency for actual gold
at the designated exchange rate. This “rule of exchange”
allows anyone to go the central bank and exchange coins
or currency for pure gold or vice versa. The gold standard
works on the assumption that there are no restrictions on
capital movements or export of gold by private citizens
across countries.
Because the central bank must always be prepared to give
out gold in exchange for coin and currency upon demand,
it must maintain gold reserves. Thus, this system ensures
that the exchange rate between currencies remains fixed.
For example, under this standard, a £1 gold coin in the
United Kingdom contained 113.0016 grains of pure gold,
while a $1 gold coin in the United States contained 23.22
grains. The mint parity or the exchange rate was thus: R
= $/£ = 113.0016/23.22 = 4.87.[6] The main argument in
favor of the gold standard is that it ties the world price
level to the world supply of gold, thus preventing inflation
unless there is a gold discovery (a gold rush, for example).
4.2 Price specie flow mechanism
The automatic adjustment mechanism under the gold
standard is the price specie flow mechanism, which operates so as to correct any balance of payments disequilibrium and adjust to shocks or changes. This mechaFig.3: Excess supply of dollars
nism was originally introduced by Richard Cantillon and
later discussed by David Hume in 1752 to refute the
Fig.3 describes the excess supply of dollars. This is a sitmercantilist doctrines and emphasize that nations could
uation where the foreign demand for goods, services, and
not continuously accumulate gold by exporting more than
financial assets from the European Union exceeds the Eutheir imports.
ropean demand for foreign goods, services, and financial
assets. If the supply of dollars rises from SS to S'S', ex- The assumptions of this mechanism are:
cess supply is created to the extent of ab. The ECB will
1. Prices are flexible
buy ab dollars in exchange for euros to maintain the limit
4
5 HYBRID EXCHANGE RATE SYSTEMS
2. All transactions take place in gold
• Argentina (1991 to 2001);
3. There is a fixed supply of gold in the world
• Estonia (1992 to 2010);
4. Gold coins are minted at a fixed parity in each country
• Lithuania (1994 to 2014);
5. There are no banks and no capital flows
• Bulgaria (since 1997);
Adjustment under a gold standard involves the flow of
gold between countries resulting in equalization of prices
satisfying purchasing power parity, and/or equalization of
rates of return on assets satisfying interest rate parity at
the current fixed exchange rate. Under the gold standard,
each country’s money supply consisted of either gold or
paper currency backed by gold. Money supply would
hence fall in the deficit nation and rise in the surplus nation. Consequently, internal prices would fall in the deficit
nation and rise in the surplus nation, making the exports
of the deficit nation more competitive than those of the
surplus nations. The deficit nation’s exports would be encouraged and the imports would be discouraged till the
deficit in the balance of payments was eliminated.[13]
In brief:
Deficit nation: Lower money supply → Lower internal
prices → More exports, less imports → Elimination of
deficit
Surplus nation: Higher money supply → Higher internal
prices → Less exports, more imports → Elimination of
surplus
4.3
Reserve currency standard
In a reserve currency system, the currency of another
country performs the functions that gold has in a gold
standard. A country fixes its own currency value to a unit
of another country’s currency, generally a currency that
is prominently used in international transactions or is the
currency of a major trading partner. For example, suppose India decided to fix its currency to the dollar at the
exchange rate E₹/$ = 45.0. To maintain this fixed exchange rate, the Reserve Bank of India would need to
hold dollars on reserve and stand ready to exchange rupees for dollars (or dollars for rupees) on demand at the
specified exchange rate. In the gold standard the central
bank held gold to exchange for its own currency, with a
reserve currency standard it must hold a stock of the reserve currency.
Currency board arrangements are the most widespread
means of fixed exchange rates. Under this, a nation rigidly
pegs its currency to a foreign currency, special drawing
rights (SDR) or a basket of currencies. The central bank’s
role in the country’s monetary policy is therefore minimal.
CBAs have been operational in many nations like
• Hong Kong (since 1983);
• Bosnia and Herzegovina (since 1997);
• Bermuda (since 1972);
• Denmark (since 1945);
• Brunei (since 1967) [14]
4.4 Gold exchange standard
The fixed exchange rate system set up after World War
II was a gold-exchange standard, as was the system that
prevailed between 1920 and the early 1930s.[15] A gold
exchange standard is a mixture of a reserve currency standard and a gold standard. Its characteristics are as follows:
• All non-reserve countries agree to fix their exchange
rates to the chosen reserve at some announced rate
and hold a stock of reserve currency assets.
• The reserve currency country fixes its currency value
to a fixed weight in gold and agrees to exchange on
demand its own currency for gold with other central
banks within the system, upon demand.
Unlike the gold standard, the central bank of the reserve
country does not exchange gold for currency with the general public, only with other central banks.
5 Hybrid exchange rate systems
The current state of foreign exchange markets does not
allow for the rigid system of fixed exchange rates. At the
same time, freely floating exchange rates expose a country to volatility in exchange rates. Hybrid exchange rate
systems have evolved in order to combine the characteristics features of fixed and flexible exchange rate systems.
They allow fluctuation of the exchange rates without completely exposing the currency to the flexibility of a free
float.
5.1 Basket-of-currencies
Countries often have several important trading partners
or are apprehensive of a particular currency being too
volatile over an extended period of time. They can thus
choose to peg their currency to a weighted average of several currencies (also known as a currency basket) . For
example, a composite currency may be created consisting
5.5
Dollarization/Euroization
of hundred rupees, 100 Japanese yen and one U.S. dollar the country creating this composite would then need
to maintain reserves in one or more of these currencies
to satisfy excess demand or supply of its currency in the
foreign exchange market.
5
5.5 Dollarization/Euroization
This is the most extreme and rigid manner of fixing exchange rates as it entails adopting the currency of another
country in place of its own. The most prominent example
is the eurozone, where 19 European Union (EU) member
A popular and widely used composite currency is the
states have adopted the euro (€) as their common curSDR, which is a composite currency created by the
rency. Their exchange rates are effectively fixed to each
International Monetary Fund (IMF), consisting of a fixed
other.
quantity of U.S. dollars, euros, Japanese yen, and British
There are similar examples of countries adopting the U.S.
pounds.
dollar as their domestic currency: British Virgin Islands,
Caribbean Netherlands, East Timor, Ecuador, El Salvador, Marshall Islands, Federated States of Micronesia,
5.2 Crawling pegs
Palau, Panama, and the Turks and Caicos Islands.
In a crawling peg system a country fixes its exchange rate (See ISO 4217 for a complete list of territories by curto another currency or basket of currencies. This fixed rency.)
rate is changed from time to time at periodic intervals
with a view to eliminating exchange rate volatility to some
extent without imposing the constraint of a fixed rate. 6 Advantages
Crawling pegs are adjusted gradually, thus avoiding the
need for interventions by the central bank (though it may
• A fixed exchange rate may minimize instabilities in
still choose to do so in order to maintain the fixed rate in
real economic activity[16]
the event of excessive fluctuations).
• Central banks can acquire credibility by fixing their
country’s currency to that of a more disciplined nation [16]
5.3 Pegged within a band
A currency is said to be pegged within a band when the
central bank specifies a central exchange rate with reference to a single currency, a cooperative arrangement, or a
currency composite. It also specifies a percentage allowable deviation on both sides of this central rate. Depending on the band width, the central bank has discretion in
carrying out its monetary policy. The band itself may be
a crawling one, which implies that the central rate is adjusted periodically. Bands may be symmetrically maintained around a crawling central parity (with the band
moving in the same direction as this parity does). Alternatively, the band may be allowed to widen gradually
without any pre-announced central rate.
5.4
Currency boards
• On a microeconomic level, a country with poorly developed or illiquid money markets may fix their exchange rates to provide its residents with a synthetic
money market with the liquidity of the markets of
the country that provides the vehicle currency[16]
• A fixed exchange rate reduces volatility and fluctuations in relative prices
• It eliminates exchange rate risk by reducing the associated uncertainty
• It imposes discipline on the monetary authority
• International trade and investment flows between
countries are facilitated
• Speculation in the currency markets is likely to be
less destabilizing under a fixed exchange rate system
than it is in a flexible one, since it does not amplify
fluctuations resulting from business cycles
A currency board (also known as 'linked exchange rate
system”) effectively replaces the central bank through a
• Fixed exchange rates impose a price discipline on
legislation to fix the currency to that of another country.
nations with higher inflation rates than the rest of
The domestic currency remains perpetually exchangeable
the world, as such a nation is likely to face persisfor the reserve currency at the fixed exchange rate. As the
tent deficits in its balance of payments and loss of
anchor currency is now the basis for movements of the
reserves [6]
domestic currency, the interest rates and inflation in the
domestic economy would be greatly influenced by those
of the foreign economy to which the domestic currency is
tied. The currency board needs to ensure the maintenance 7 Disadvantages
of adequate reserves of the anchor currency. It is a step
away from officially adopting the anchor currency (termed The main criticism of a fixed exchange rate is that flexias dollarization or euroization).
ble exchange rates serve to adjust the balance of trade.[17]
6
10
When a trade deficit occurs under a floating exchange
rate, there will be increased demand for the foreign
(rather than domestic) currency which will push up the
price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less
attractive to the domestic market and thus pushes down
the trade deficit. Under fixed exchange rates, this automatic rebalancing does not occur.
REFERENCES
8 Fixed exchange rate regime versus capital control
The belief that the fixed exchange rate regime brings
with it stability is only partly true, since speculative attacks tend to target currencies with fixed exchange rate
regimes, and in fact, the stability of the economic system
is maintained mainly through capital control. A fixed exGovernments also have to invest many resources in get- change rate regime should be viewed as a tool in capital
ting the foreign reserves to pile up in order to defend the control.
pegged exchange rate. Moreover, a government, when
having a fixed rather than dynamic exchange rate, cannot use monetary or fiscal policies with a free hand. For
instance, by using reflationary tools to set the economy 9 See also
rolling (by decreasing taxes and injecting more money in
• Category:Fixed exchange rate (lists currently
the market), the government risks running into a trade
pegged currencies)
deficit. This might occur as the purchasing power of a
common household increases along with inflation, thus
• Exchange rate regime
making imports relatively cheaper.
• Floating exchange rate
Additionally, the stubbornness of a government in defending a fixed exchange rate when in a trade deficit will
force it to use deflationary measures (increased taxation
and reduced availability of money), which can lead to
unemployment. Finally, other countries with a fixed exchange rate can also retaliate in response to a certain
country using the currency of theirs in defending their
exchange rate.
Other noted disadvantages:
• Linked exchange rate
• Managed float regime
• Gold standard
• Bretton Woods system
• Nixon Shock
• Smithsonian Agreement
• The need for a fixed exchange rate regime is challenged by the emergence of sophisticated derivatives
and financial tools in recent years, which allow firms
to hedge exchange rate fluctuations
• The announced exchange rate may not coincide with
the market equilibrium exchange rate, thus leading
to excess demand or excess supply
• Foreign exchange fixing
• Currency union
• Black Wednesday
• Capital control
• Convertibility
• The central bank needs to hold stocks of both foreign and domestic currencies at all times in order to
adjust and maintain exchange rates and absorb the
excess demand or supply
• Currency board
• Fixed exchange rate does not allow for automatic
correction of imbalances in the nation’s balance
of payments since the currency cannot appreciate/depreciate as dictated by the market
• Swan diagram
• Impossible trinity
• Speculative attack
10 References
• It fails to identify the degree of comparative advantage or disadvantage of the nation and may lead
to inefficient allocation of resources throughout the
world
[1] Dornbusch, Rüdiger; Fisher, Stanley; Startz, Richard
(2011). Macroeconomics (Eleventh ed.). New York:
McGraw-Hill/Irwin. ISBN 978-0-07-337592-2.
• There exists the possibility of policy delays and mistakes in achieving external balance
[2] Goodman, Peter S. (2005-07-22). “China Ends FixedRate Currency”. Washington Post. Retrieved 2010-0506.
• The cost of government intervention is imposed
upon the foreign exchange market [6]
[3] Bordo, Michael D.; Christl, Josef; Just, Christian; James,
Harold (2004). OENB Working Paper (no. 92) (PDF).
11.1
News articles
7
[4] Cohen, Benjamin J, “Bretton Woods System”, Routledge
Encyclopedia of International Political Economy
4. http://people.ucsc.edu/~{}mpd/
InternationalFinancialStability_update.pdf
[5] Kreinin, Mordechai (2010). International Economics: A
Policy Approach. Pearson Learning Solutions. p. 438.
ISBN 0-558-58883-2.
5. http://www.polsci.ucsb.edu/faculty/cohen/inpress/
bretton.html
[6] Salvatore, Dominick (2004). International Economics.
John Wiley & Sons. ISBN 978-81-265-1413-7.
6. http://www.imf.org/external/pubs/ft/issues13/
index.htm
[7] Bordo, Michael (1999). Gold Standard and Related
Regimes: Collected Essays. Cambridge University Press.
ISBN 0-521-55006-8.
[8] White, Lawrence. Is the Gold Standard Still the Gold Standard among Monetary Systems?, CATO Institute Briefing
Paper no. 100, 8 Feb 2008
[9] Dooley, M.; Folkerts-Landau, D.; Garber, P. (2009).
“Bretton Woods Ii Still Defines the International Monetary System”. Pacific Economic Review 14 (3): 297–311.
doi:10.1111/j.1468-0106.2009.00453.x.
[10] Goodman, Peter S. (2005-07-27). “Don't Expect Yuan To
Rise Much, China Tells World”. Washington Post. Retrieved 2010-05-06.
7. http://www.imf.org/external/pubs/ft/issues/
issues38/ei38.pdf
8. http://www.cato.org/pubs/bp/bp100.pdf
9. http://econ.la.psu.edu/~{}bickes/goldstd.pdf
10. Exchange Rate Regimes Past, Present and Future at
the Wayback Machine (archived April 11, 2010)
11. Reinhart, C. M.; Rogoff, K. S. (2004).
“The Modern History of Exchange Rate Arrangements: A Reinterpretation”.
Quarterly
Journal of Economics 119 (1):
1–48.
doi:10.1162/003355304772839515.
[11] Griswold, Daniel (2005-06-25). “Protectionism No Fix
for China’s Currency”. Cato Institute. Retrieved 201005-06.
12. Exchange Rate Regimes and International Reserves
at the Wayback Machine (archived July 26, 2011)
[12] O'Connell, Joan (1968). “An International Adjustment
Mechanism with Fixed Exchange Rates”. Economica
35 (139): 274–282. doi:10.2307/2552303. JSTOR
2552303.
11.1 News articles
[13] Cooper, R.N. (1969). International Finance. Penguin
Publishers. pp. 25–37.
[14] Salvatore, Dominick; Dean, J; Willett,T. The Dollarisation Debate (Oxford University Press, 2003)
[15] Bordo, M. D.; MacDonald, R. (2003). “The inter-war
gold exchange standard: Credibility and monetary independence”. Journal of International Money and Finance
22: 1. doi:10.1016/S0261-5606(02)00074-8.
[16] Garber, Peter M.; Svensson, Lars E. O. (1995). “The Operation and Collapse of Fixed Exchange Rate Regimes”.
Handbook of International Economics 3. Elsevier. pp.
1865–1911. doi:10.1016/S1573-4404(05)80016-4.
[17] Suranovic, Steven (2008-02-14). International Finance
Theory and Policy. Palgrave Macmillan. p. 504.
11
External links
1. http://internationalecon.com/Finance/Fch80/
F80-1.php
2. http://www.wellesley.edu/Economics/weerapana/
econ213/econ213pdf/lect213-05.pdf
3. Gavin, F. J. (2002). “The Gold Battles within the
Cold War: American Monetary Policy and the Defense of Europe, 1960–1963”. Diplomatic History
26 (1): 61–94. doi:10.1111/1467-7709.00300.
1. http://www.washingtonpost.com/wp-dyn/content/
article/2005/07/26/AR2005072600681.html
2. http://www.forexrealm.com/forex-analytics/
exchange-rates/exchange-rate-regimes.html
3. http://www.gold-eagle.com/greenspan011098.
html
4. http://www.washingtonpost.com/wp-dyn/content/
article/2005/07/21/AR2005072100351.html
8
12
12
12.1
TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES
Text and image sources, contributors, and licenses
Text
• Fixed exchange-rate system Source: https://en.wikipedia.org/wiki/Fixed_exchange-rate_system?oldid=670314117 Contributors:
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Gediminas33, Meng6, Cneeds, Aight 2009, Helpful Pixie Bot, BG19bot, Abhilasha369, Sridevi Tolety, MyNameWasTaken, Dexbot,
AcidSnow, Gonzalo.villarreal, Pishcal, Sigma.4292 and Anonymous: 22
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Images
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• File:Mechanism_of_Fixed_Exchange_Rate_System.png
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12.3
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