A system in which a country’s exchange rate remains constant. Normally this means that the exchange rate between the country’s currency and some other currency or basket of currencies stays within some small margin of fluctuation around a constant par value. Maintenance of a fixed exchange rate requires that a country hold sufficient foreign exchange reserves which are used for intervention in the foreign exchange market to absorb small variations in willingness to hold its currency, and that monetary and fiscal policies are used sufficiently vigorously to keep these variations small.