What is Managed Currency?

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

How Does Managed Currency Work?

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 Does Managed Currency Matter?

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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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