Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Managed Currency

What it is:

Managed currency is the opposite of currency whose exchange rate is determined by the amount of supply and demand for the currency in the global marketplace. Most currencies, however, are managed by their central banks to some degree in order to achieve or maintain economic stability.

How it works (Example):

Let's say Country X's currency is called the Widget. The Country X central bank does a lot of trade with Country Y, which uses the Gidget as its currency. The Country X central bank decides to manage its currency by setting the exchange rate at 5 Gidgets per Widget.

Country Y does not manage its currency. Accordingly, in Country Y, the number of Gidgets required to buy a Widget varies according to how much demand there is for Widgets and Gidgets.

Why it Matters:

Managed currency is currency whose exchange rate is controlled by a central bank.