Fixed and floating exchange rates operate by opposite logics

Evidence

The exchange rate is the rate at which currencies are exchanged. The exchange rate can be fixed or flexible (also called floating). In the first case, the conversion rate is always the same and does not necessarily reflect trends in the foreign exchange markets. This is what happens with the euro/CFA franc exchange rate. In the second case, the conversion rate constantly fluctuates depending on the economic dynamism of the concerned countries and the choices made by their respective monetary authorities. Its value is determined by the supply and demand of the various currencies on the foreign exchange markets. This is the case for the euro/dollar exchange rate, for example. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 121

Categorization

• DEFINE: Distinguishes fixed versus floating exchange regimes, using CFA and euro/dollar as cases.
• XREF: connects to: Gold standard currencies had fixed parities and central banks limited issuance to gold reserves — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64; Fixed exchange rates trade employment stability for external balance — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 295; A fixed exchange rate regime forces member countries to resort to internal devaluation — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 125 (+4 more)

Related

• Fixed exchange rates trade employment stability for external balance (similarity 0.87)
• CFA ‘stability’ masks currency fluctuation against dollar and pound (similarity 0.85)
• Fixed exchange rates force austerity when competitiveness declines (similarity 0.84)
• Gold standard currencies had fixed parities and central banks limited issuance to gold reserves (similarity 0.84)
• Devaluation and revaluation simply shift the fixed CFA-euro parity (similarity 0.83)
• CFA franc parity changed only once since 1948 (similarity 0.82)
• CFA franc parity was frozen at 50 per French franc from 1958 to 1994 (similarity 0.82)
• A fixed exchange rate regime forces member countries to resort to internal devaluation (similarity 0.81)
• CFA franc value is set politically, insulated from market economic conditions (similarity 0.81)
• Fixed exchange rate countries in sub-Saharan Africa grow 1-2 points slower (similarity 0.80)
• Fixed exchange rates eliminate both hedging demand and speculation rationale for currency futures (similarity 0.80)
• The CFA franc’s parity was set without regard for local economic realities (similarity 0.78)
• Currency pegging institutionalized a principle of automaticity removing colonial control over exchange rates. (similarity 0.78)

Broader Connections

• Fixed exchange rates trade employment stability for external balance #qualifies (0.70) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 295
• A fixed exchange rate regime forces member countries to resort to internal devaluation #exemplifies (0.60) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 125
• Currency pegging institutionalized a principle of automaticity removing colonial control over exchange rates. #exemplifies (0.50) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 78