What are Fixed and Floating Exchange Rates?

The Fixed or pegged rate is a rate the government (central bank) of a country or group of countries sets and maintains as the official exchange rate.

For example one Barbadian dollar has a fixed exchange rate to the one Eastern Caribbean dollar.

Barbados, Belize and Members of the OECS have fixed exchange rates and these are administered by their respective Central Banks.

The Floating rate, on the other hand, is the opposite of a fixed exchange rate regime and is a flexible or “floating” exchange rate. The value of the currency fluctuates according to market forces and can change from day to day. There is also a “managed float” that permits the value of the currency to move within a set range.

For example the Jamaican dollar can fluctuate in value from day to day between 40 to 44 Jamaican dollars for one Barbadian dollar.

Guyana, Jamaica, Suriname and Trinidad and Tobago operate on a floating exchange rate regime. These countries agree that their currencies can be converted but their Central Banks do not guarantee the rate at which they will be exchanged and do not undertake to repatriate their currency.