Fixed Exchange Rate Systems

Fixed Exchange Rate Systems require active intervention by the government to keep the currency value stable.

• A country can create a fixed exchange system by:
  • Implementing a gold standard (the currency can be converted to gold);
  • Using a currency board to manage the money supply and keep the domestic currency value stable in relation to some foreign currency.
  • Pegging the currency to value of another currency and allow the central market to conduct monetary policy to maintain the peg.