managed currency

noun
Updated on: 13 Oct 2017

Definition of managed currency

:a currency whose purchasing power is adjusted by the monetary authorities with the purpose of influencing business activity and prices rather than determined by a fixed relationship to gold contrasted with automatic currency

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Financial Definition of MANAGED CURRENCY

managed currency

What It Is

Managed currency is currency whose exchange rate is controlled by a central bank.

How It Works

Let's say Country X's currency is called the Widget. The Country X central bank does a lot of trade with Country Y, which uses the Gidget as its currency. The Country X central bank decides to manage its currency by setting the exchange rate at 5 Gidgets per Widget.

Country Y does not manage its currency. Accordingly, in Country Y, the number of Gidgets required to buy a Widget varies according to how much demand there is for Widgets and Gidgets.

Why It Matters

Managed currency is the opposite of currency whose exchange rate is determined by the amount of supply and demand for the currency in the global marketplace. Most currencies, however, are managed by their central banks to some degree in order to achieve or maintain economic stability.


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