Glossary · Macro · Open economy

Fixed vs floating exchange rates

Under a floating rate the market sets the currency’s price and it moves every day. Under a fixed rate the central bank pegs it, buying and selling its own currency from reserves to hold the price. Floating gives up stability for a free hand in monetary policy, fixing does the reverse.

Also called: peg, managed float, exchange rate regime

Draw it yourself Taught in: Exchange Rate Regimes & the Impossible Trinity

Related terms

Impossible trinity Exchange rate

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