The value of a nation's currency is fixed against the value of another single currency with Locked-In exchange rates. It is set by the government or the central bank in order to maintain the official currency value within a narrow band and keep interest rates low. Additionally, this ensures that the government can adjust exchange rates when necessary.
Locked-In Rates
Maintains exchange rate stability.
Nominal, as set by the government.
Transaction costs are reduced.
Transactions are protected from risk and uncertainty.
Changes in supply and demand of currency are not automatically adjusted.
It is possible to devalue the domestic currency by a large amount.
Excluded from the benefits of free markets.