An exchange rate that is fixed against other major currencies through action by governments or central banks, usually within small margins of fluctuation around the central rate. Likely to involve periodic intervention in the foreign exchange market by one or more central banks to buy or sell the currency in question if it moves below or above itsmargins.
A fixed currency regime, also known as a pegged exchange rate system, is a type of exchange rate system in which a country's currency is pegged or fixed to the value of another currency or a basket of currencies. Under a fixed currency regime, the central bank of the country will buy or sell its own currency in the foreign exchange market in order to maintain the fixed exchangerate.
Some examples of countries with fixed currency regimesinclude:
- Hong Kong: The Hong Kong dollar is pegged to the U.S. dollar at a rate of approximately 7.75 Hong Kong dollars to 1 U.S. dollar. The Hong Kong Monetary Authority (HKMA) is responsible for maintaining the peg through intervention in the foreign exchangemarket.
- China: The Chinese renminbi is pegged to a basket of currencies, with the U.S. dollar being the most important component of the basket. The People's Bank of China (PBOC) is responsible for maintaining the peg through intervention in the foreign exchangemarket.
- Saudi Arabia: The Saudi riyal is pegged to the U.S. dollar at a rate of 3.75 riyals to 1 U.S. dollar. The Saudi Arabian Monetary Authority (SAMA) is responsible for maintaining the peg through intervention in the foreign exchangemarket.
- Kuwait: The Kuwaiti dinar is pegged to a basket of currencies, with the U.S. dollar being the most important component of the basket. The Central Bank of Kuwait is responsible for maintaining the peg through intervention in the foreign exchangemarket.
- Bahrain: The Bahraini dinar is pegged to the U.S. dollar at a rate of approximately 0.38 dinars to 1 U.S. dollar. The Central Bank of Bahrain is responsible for maintaining the peg through intervention in the foreign exchangemarket.
