Fix Currency Article For Free

The advantages of a fixed exchange rate include: Providing greater certainty for importers and exporters, therefore encouraging more international trade and investment. Helping the government maintain low inflation, which can have positive long-term effects such as keeping down interest rates.

A fixed exchange rate is when a country ties the value of its currency to some other widely-used commodity or currency. The dollar is used for most transactions in international trade. Today, most fixed exchange rates are pegged to the U.S. dollar.

The dollar peg is used to stabilize exchange rates between trading partners. A country that pegs its currency to the U.S. dollar seeks to keep its currency's value low. A lower value currency vis-a-vis the dollar allows the country's exports to be very competitively priced.

Countries choose to peg their currency to safeguard the competitiveness of their exported goods and services. A weaker currency is good for exports and tourists, as everything becomes cheaper to purchase. The wider the fluctuations in currencies, the more detrimental it can be to international trade.

Higher interest rates in a country can increase the value of that country's currency relative to nations offering lower interest rates. Political and economic stability and the demand for a country's goods and services are also prime factors in currency valuation.

There are a handful of methods that can solve a currency crisis, including implementing floating exchange rates, moving away from pegged rates, monetary policy that allows for trading with the market, government policies to attract foreign investment, and the country purchasing its own currency.

Unlike a currency devaluation as part of a trade war, a currency crisis is not a purposeful event and is to be avoided. Central banks and governments can intervene to help stabilize a currency by selling off reserves of foreign currency or gold, or by intervening in the forex markets.