Valutaregimes

Valutaregimes, or exchange rate regimes, are the official frameworks countries use to manage the value of their currency relative to other currencies. They range from fixed or pegged arrangements to floating regimes, with several hybrid forms in between. The choice reflects the trade-off between monetary policy autonomy, price stability, and external competitiveness.

Typical categories include fixed or pegged regimes, where the domestic currency is anchored to a foreign currency or a basket of currencies. A currency board or formal peg keeps the rate within narrow bounds and often requires large foreign reserves to defend the peg. Examples include Hong Kong’s long-standing link to the US dollar and Denmark’s currency peg under ERM II.

Floating regimes let the exchange rate move largely by market forces. Central banks may intervene only occasionally, or not at all, to address disorderly moves or to support broader policy goals such as inflation targeting. This category is sometimes described as a clean or managed float, depending on the degree of intervention.

Hybrid or managed regimes cover crawling pegs, crawling bands, and target zones, where authorities guide the currency within a gradually changing range. These regimes aim to reduce volatility while retaining some policy influence over the exchange rate.

A currency union represents another form, where several countries share a single currency or fixed exchange rate policy within a region, as in the euro area. The choice of regime affects monetary policy autonomy, inflation transmission, external stability, and vulnerability to external shocks. Credibility, institutions, and reserve adequacy influence the effectiveness of any regime.