Fixed exchange rate is the symmetry of floating exchange rate, which is a common exchange rate system under the gold standard and Bretton Woods system. This system stipulates that a fixed ratio should be maintained between the domestic currency and the currencies of other countries, exchange rate fluctuations can only be limited to a certain range, and official intervention can ensure the stability of the exchange rate.
The advantage of fixed exchange rate is that
(1) is conducive to stable economic development.
(2) Economic entities that are conducive to international trade, international credit and international investment calculate costs and profits, thus avoiding the risk of exchange rate fluctuations.
Extended data
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. According to the exchange rate that the market supply and demand freely rise and fall, the monetary authorities do not interfere. Under the floating exchange rate, gold parity has lost its practical significance, and the official exchange rate only plays a certain reference role.
As far as the floating form is concerned, if the government does not intervene in exchange rate fluctuations and completely lets the relationship between supply and demand determine the exchange rate, it is called free floating or clean floating. However, in order to maintain the stability of exchange rate, or for some political and economic purposes, governments all take more or less intervention measures against exchange rate fluctuations. This floating exchange rate is called managed floating or dirty floating internationally. 1973 after the collapse of the fixed exchange rate system, western countries generally implemented a floating exchange rate system.
According to whether the government intervenes or not, floating exchange rate can be divided into free floating exchange rate and managed floating exchange rate. In real life, the government does not take any intervention measures on the exchange rate of its own currency, and there are almost no countries that completely adopt a free floating exchange rate. Because the exchange rate has a great influence on a country's balance of payments and economic balance, most governments control the trend of the exchange rate by adjusting interest rates, buying and selling foreign exchange in the foreign exchange market and controlling capital flows.
As far as floating mode is concerned, floating exchange rate can be divided into separate floating and joint floating.