Macroeconomic Policy with Fixed and Pegged Exchange Rates

Abstract

The distinction between fixed and pegged exchange rates is often rather blurred, sometimes by design. The essential distinction between the two is that a fixed exchange rate is just that: fixed. The epitome of the fixed exchange rate system was the gold standard (strictly the gold currency standard), in which the exchange rate between two currencies was determined by the relative weight in gold of the main coin of the realm! That is, if the weight in gold of a sovereign was four times that of a US dollar coin then the exchange rate was £1 = $4.²