Definition
- Managed exchange rate
- A managed exchange rate, or soft peg, is a policy in which the market usually sets the rate, but the central bank intervenes when it moves rapidly in one direction.
Example
Can you think of an example of managed exchange rate?
A central bank lets its currency drift for months. When the currency loses 8 per cent in a single week, the bank buys it with reserves to slow the fall, then steps back.
Test yourself
Can you name the three types of exchange rate system?