Currency band

This article is about exchange rates. For currency packaging device, see currency strap.

Foreign exchange
Exchange rates
Currency band Exchange rate Exchange-rate regime Exchange-rate flexibility Dollarization Fixed exchange rate Floating exchange rate Linked exchange rate Managed float regime
Markets
Foreign exchange market Futures exchange Retail foreign exchange
Assets
Currency Currency future Currency forward Non-deliverable forward Foreign exchange swap Currency swap Foreign exchange option
Historical agreements
Bretton Woods Conference Smithsonian Agreement Plaza Accord Louvre Accord
See also
Bureau de change Hard currency Currency pair

The currency band is a system of exchange rates by which a floating currency is backed by hard money.

A country selects a range, or "band", of values at which to set their currency, and returns to a fixed exchange rate if the value of their currency shifts outside this band. This allows for some revaluation, but tends to stabilize the currency's value within the band. In this sense, it is a compromise between a fixed (or "pegged") exchange rate and a floating exchange rate. ^[1]

For example, the exchange rate of the renminbi of the mainland of the People's Republic of China has recently been based upon a currency band;^[2] the European Economic Community's "snake in the tunnel" was a similar concept that failed, but ultimately led to the establishment of the European Exchange Rate Mechanism (ERM) and ultimately the Euro.

Another Explanation

A currency system that establishes a trading range that a currency's exchange rate can float between. A currency band represents the price floor and ceiling within which the price of a given currency can trade, and is like a hybrid of a fixed exchange rate and a floating exchange rate. The currency band restricts how much the price can move relative to a reference currency or currencies.

References

↑ "Investopedia Currency Band Definition"
↑ China Vows Wider Yuan Movement April 18, 2013 Wall Street Journal

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