A fixed exchange rate is an exchange-rate regime in which a country's authorities hold the value of its currency at a set level against another currency, a basket of currencies or a commodity such as gold. It is better known as a currency peg, the entry that covers how pegs are set, defended and abandoned.
To keep the rate fixed, the central bank stands ready to buy or sell its own currency at the official price, using its foreign exchange reserves. The strictest version is a currency board, which backs every unit of local money with foreign currency; the loosest arrangements let the rate move within a band. Historical examples include the gold standard and the Bretton Woods system, under which most major currencies were fixed to the US dollar until the early 1970s. The opposite regime is a floating exchange rate. Under the impossible trinity, a country that fixes its rate and allows free capital movement gives up an independent monetary policy, and some countries go further and adopt a foreign currency outright through dollarization.