Many currencies were "fixed" in the past, and more recently more are floating. Some still are fixed or controlled, and that's helps the forex world operate.
give me an example of a fixed currency, and i'll give you an example of punishment metered out to those who would try to trade it at a different price.
I was thinking about my local currency up until the mid 1980's, but China still had theirs controlled until 2005. I'll try to find a nice/current example.
http://en.wikipedia.org/wiki/Category:Fixed_exchange_rate Hong Kong dollar isn't too obscure. UAE might be a little less common.
well, i read this today out of interest:
Typically, a government wanting to maintain a fixed exchange rate does so by either buying or selling its own currency on the open market. This is one reason governments maintain reserves of foreign currencies. If the exchange rate drifts too far below the desired rate, the government buys its own currency in the market using its reserves. This places greater demand on the market and pushes up the price of the currency. If the exchange rate drifts too far above the desired rate, the government sells its own currency, thus increasing its foreign reserves.
Another, less used means of maintaining a fixed exchange rate is by simply making it illegal to trade currency at any other rate. This is difficult to enforce and often leads to a black market in foreign currency. Nonetheless, some countries are highly successful at using this method due to government monopolies over all money conversion. This was the method employed by the Chinese government to maintain a currency peg or tightly banded float against the US dollar. Throughout the 1990s, China was highly successful at maintaining a currency peg using a government monopoly over all currency conversion between the yuan and other currencies.
i wouldn't call the first method 'fixed' because clearly it could float between $7.95 and $8.05 for example even if the government was trying to 'fix' it at $8 by buying and selling in the market.
in the second example, china made it totally illegal to trade at a different rate, and i for one wouldn't want to get caught doing anything illegal in china.
