Fixed Exchange Rate Systems
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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.
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