The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Fixed Exchange Rates

  • Peter M. Oppenheimer
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_676

Abstract

An exchange rate is a price of one currency in terms of others. The existence of exchange rates derives from the fact that the world is divided into a large number of currency areas, mostly coterminous with nationstates, which trade with one another and therefore exchange currencies at some point (or else confine their trade to barter or ‘counter-trade’). The monetary authorities of a country, which regulate money supply and credit conditions, have by the same token a responsibility for the country’s exchange rate. The precise significance of the exchange rate in relation to economic policy depends on how that responsibility is exercised; in particular on how far the authorities decide to ‘fix’ the rate, i.e. keep its movement within a narrow band of fluctuation (in the limit, zero) over a period of time.

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Peter M. Oppenheimer
    • 1
  1. 1.