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The basic types are a floating exchange rate, where the market dictates the movements of the exchange rate, a Pegged Float, where the central bank keeps the rate from deviating too far from a target band or value, and the peggedexchange rate, which ties the currency to another currency, mostly more widespread currencies s.a.
Pegged with Horizontal Bands: The currency is allowed to fluctuate in a fixed band (bigger than 1%) around a central rate.
In case of a separate currency, also known as a Currency Board arrangement, the domestic currency is backed one to one by foreign reserves.
For example, the Asian financial crisis was ameliorated by the fixedexchange rate of the Chinese renminbi, and the IMF and the World Bank now acknowledge that Malaysia's adoption of a peg to the US dollar in the aftermath of the same crisis was highly successful.
This masking of information created volatility which encouraged speculators to "attack" the peggedcurrencies and as a response these countries to attempt to defend their currency rather than allow it to devalue.
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