LINKED EXCHANGE RATE SYSTEM
A method of administering a country’s currency and exchange rate by connecting its national currency to another base currency held at a set ratio in deposit at domestic banks. This can be used to settle currency and control inflation.
Usually, no government or monetary policy decisions interference will make impact on the exchange rate. Currencies are only issued once there are reserves in the joined currency to cover it up. If the exchange rate starts to move from the fixed ratio, it is instantly added or taken out of circulation to bring back the balance in the ratio.
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