Fixed exchange rate refers to the exchange rate between one country's currency and another country's currency is basically fixed. But the exchange rate is not completely fixed, but fluctuates around a relatively fixed parity.

Floating exchange rate means that the exchange rate between one country's currency and other countries' currencies has no fluctuation range, but is determined by the supply and demand relationship in the foreign exchange market. It is also divided into free floating and management floating. Free floating, also known as "clean floating", means that the central bank does not take any intervention activities in the foreign exchange market, and the exchange rate is completely determined by market forces spontaneously; Managed floating, also known as "dirty floating", refers to countries with floating exchange rate system. In order to control or slow down the fluctuation of the market exchange rate, the central bank intervenes in various forms in the foreign exchange market, mainly by selling or buying foreign exchange according to the situation of the foreign exchange market and influencing the exchange rate through the influence on supply and demand.

If a country implements a fixed exchange rate system, it must have sufficient international reserves to ensure that the government has the ability to maintain a fixed exchange rate and guard against exchange rate risks. This is not a problem for economies with large foreign exchange reserves and trade surpluses, such as Japan, China and Hong Kong Special Administrative Region, but it is a very difficult condition for some countries with perennial trade deficits in Latin America and Asia. Argentina, South Korea, Thailand, Indonesia and other countries were unable to maintain their official exchange rates during the financial crisis, because their persistent trade deficit led to the loss of foreign exchange reserves, and they had to let their exchange rates float.

If the floating exchange rate system is implemented, there is no need to maintain huge foreign exchange reserves. The floating exchange rate system is conducive to adjusting the economy and promoting international trade through exchange rate fluctuations. Especially in the case that the central bank's foreign exchange and gold reserves are insufficient to maintain a fixed exchange rate, the floating exchange rate system is beneficial to the economy and can also ban illegal foreign exchange black market transactions. However, the floating exchange rate system is not conducive to the stability of domestic and international economic relations and will intensify economic activities.