The currency rate that is set against another currency or currencies.
Historically, currency rates were fixed against gold as in the Bretton Woods System. Following that breakdown of that system, many emerging markets fixed (or pegged) rates against the dollar. Fixed exchange rates serve as stability (because countries that fix or “peg” their currencies do so to one that is stable like the USD), but is hard to maintain and does not allow much freedom in implementing monetary policies as a Floating Exchange Rate would. For example, if country A’s currency is “pegged” to country B’s (in the Fixed Exchange Rate scenario), then country A’s currency is at the mercy of country B’s monetary policies.
The Chinese Renminbi, or Yuan is an example of fixed rate and is under constant pressure as it is widely believed to be undervalued.
