What is the exchange rate system?

Exchange rate system, also known as exchange rate arrangement (Exchange Rate Arrangement): refers to the systematic regulations made by countries or the international community on the principles, methods, methods and institutions for determining, maintaining, adjusting and managing exchange rates. Traditionally, according to the range of exchange rate changes, exchange rate systems are divided into two types: fixed exchange rate systems and floating exchange rate systems. Western countries implemented a fixed exchange system before the 1970s. Later, due to the dollar crisis, the Bretton Woods system collapsed, and countries began to adopt a floating exchange rate system.

There are various ways to divide the exchange rate system
Especially in foreign exchange practice, there are different exchange rates from different perspectives.

Fixed exchange rate
A fixed exchange rate refers to a relatively fixed exchange rate of one country’s currency to another country’s currency, and only allowed to float within a certain range. After the Second World War, the Bretton Woods Agreement formulated by the Bretton Woods Conference stipulated that the exchange rate of each country against the U.S. dollar was determined by the currency’s gold content. The exchange rate of each country’s currency against the U.S. dollar was fixed within a certain range. The country’s currency authorities are obliged to intervene in the market and stabilize the exchange rate. A fixed exchange rate is beneficial to the development of international trade and reduces exchange rate risks, but it limits the autonomy of the monetary authorities of various countries to implement monetary systems.

Floating exchange rate
In 1973, the collapse of the international monetary system established on the Bretton Woods Agreement was a sign of the implementation of floating exchange rate systems. Floating exchange rate refers to the fact that the exchange rate between currencies of various countries is not restricted, but changes with the changes in market supply and demand. The floating exchange rate system increases exchange rate risk, but reduces the pressure on the monetary authorities of various countries

What is the linked exchange rate system?
The exchange rate system is the “link” that links the domestic economy with foreign economies. The exchange rate system is an important macroeconomic policy of a country. Under the background of economic globalization, the exchange rate policy has increasingly become an important means for the government to carry out macroeconomic regulation and control.

What is the linked exchange rate system?
The exchange rate system has a significant impact on the exchange rate decisions of various countries. Under different exchange rate systems, exchange rate changes also have varying degrees of transmission and impact on a country’s economy. Countries need to intervene in exchange rates to a different degree. Improve the balance of payments and stabilize the domestic economy.

Exchange rate system A country should choose its own exchange rate system based on various factors such as its economic scale, economic openness, and economic development level.

Traditionally, the exchange rate system can be divided into a fixed exchange rate system, a floating exchange rate system, and a pegged exchange rate system according to whether there is a regulation on currency parity and the degree of exchange rate fluctuations. In addition to the exchange rate system, there are other types of exchange rate systems, such as the linked exchange rate system.