<P> A fixed exchange - rate system can also be used as a means to control the behavior of a currency, such as by limiting rates of inflation . However, in doing so, the pegged currency is then controlled by its reference value . As such, when the reference value rises or falls, it then follows that the value (s) of any currencies pegged to it will also rise and fall in relation to other currencies and commodities with which the pegged currency can be traded . In other words, a pegged currency is dependent on its reference value to dictate how its current worth is defined at any given time . In addition, according to the Mundell--Fleming model, with perfect capital mobility, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability . </P> <P> In a fixed exchange - rate system, a country's central bank typically uses an open market mechanism and is committed at all times to buy and / or sell its currency at a fixed price in order to maintain its pegged ratio and, hence, the stable value of its currency in relation to the reference to which it is pegged . The central bank provides the assets and / or the foreign currency or currencies which are needed in order to finance any payments imbalances . </P> <P> In the 21st century, the currencies associated with large economies typically do not fix or peg exchange rates to other currencies . The last large economy to use a fixed exchange rate system was the People's Republic of China which, in July 2005, adopted a slightly more flexible exchange rate system called a managed exchange rate . The European Exchange Rate Mechanism is also used on a temporary basis to establish a final conversion rate against the Euro (€) from the local currencies of countries joining the Eurozone . </P> <P> The gold standard or gold exchange standard of fixed exchange rates prevailed from about 1870 to 1914, before which many countries followed bimetallism . The period between the two world wars was transitory, with the Bretton Woods system emerging as the new fixed exchange rate regime in the aftermath of World War II . It was formed with an intent to rebuild war - ravaged nations after World War II through a series of currency stabilization programs and infrastructure loans . The early 1970s saw the breakdown of the system and its replacement by a mixture of fluctuating and fixed exchange rates . </P>

Examples of countries that uses fixed exchange rate