Fixed Currency – What is a Fixed Currency?

Definition of Fixed Currency: It can be defined as an exchange rate plan in which the Central Bank hooks the currency so that the rate can fluctuate with the currencies. Currencies can be hooked to other currencies or group of currencies or even to some other important commodity like gold or silver. The fixed rate offers the basis for those countries that settle the regular trade balances. With time, the trading partners may not agree on the “hook” as it states in an unfair manner the virtual value of the individual currencies. Concessions are regarded as the single avenue for the adjustment as fixed money does not float in a free manner. A fixed rate is generally used for stabilizing the value of a currency against one another. This particular arrangement makes the investments and trade between two different countries predictable and easier and is specifically meant for undersized economies where the peripheral trade forms a huge and important part of GDP. The fixed exchange rates, set at the Bretton Monetary Conference held in 1944 were used in 1970 when US discarded gold standard named as Nixon Shock. The cash was permitted to float compared to the other currencies. The Monetary System of Europe regarded as “Snake” tried to use a modified version but it also failed. Euro is the recent episode in the attempts at the monetary union of Europe and is considered as a unified currency.