Exchange Rate Regime

An exchange rate regime is a system that decides how a country's currency is valued in relation to other currencies. In a fixed regime, the currency's value is tied to another currency or a basket of currencies, providing stability. In a floating regime, the value fluctuates based on supply and demand in the foreign exchange market. Many countries use a hybrid approach, combining elements of both fixed and floating systems. The choice of regime affects trade, inflation, and economic policies, influencing how easily a country can engage in international commerce.