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fixed exchange rate

A fixed exchange rate is a policy that consists in pegging a country’s currency to USD or EUR. By removing the danger of wild currency fluctuations, fixed exchange rates can be a valuable tool in the arsenal of a country that seeks to stabilise its inflation rate.

However, sooner or later the fundamentals are likely to shift in one direction or another, and the currency peg becomes more and more difficult to sustain. For this reason, most fixed exchange rate regimes are temporary arrangements