[Glossary](https://pecuvo.eu/en/glossary/) · Money and currencies # Fixed and floating exchange rate **In short:** With a floating rate the price of a currency is set on the market every day; with a fixed rate the state promises a set price against another currency and defends it. **Simply put:** Since 1971–1973 the major currencies have floated. Between the two extremes there are bands and crawling pegs; every year the IMF describes each country's regime. The so-called "impossible trinity" applies: a country cannot at the same time have a fixed exchange rate, free movement of capital and its own monetary policy — it chooses two of the three. **Example:** At a fixed rate of €1 = 1.95583 leva, a salary of 1,955.83 leva is always €1,000. With a floating rate, a fictional $1,000 may be €900 this week and €920 a month later. **Watch out:** Myth: "A fixed rate is always safer." It is safe while there are reserves and trust; when they are lost, it falls suddenly — as in Argentina in 2002. **Source:** IMF, Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) — https://www.imf.org/en/Publications/Annual-Arrangements-Exchange-Rates ## In depth in the modules - [Module 2](https://pecuvo.eu/en/modules/currencies-and-backing/) - [Module 27](https://pecuvo.eu/en/modules/taxes-and-public-spending/) - [Module 24](https://pecuvo.eu/en/modules/investing-the-basics/) ## Related terms - [Exchange rate](https://pecuvo.eu/en/glossary/exchange-rate/) - [Currency board](https://pecuvo.eu/en/glossary/currency-board/) - [Gold standard](https://pecuvo.eu/en/glossary/gold-standard/) - [Central bank](https://pecuvo.eu/en/glossary/central-bank/) - [Euro changeover in Bulgaria](https://pecuvo.eu/en/glossary/euro-changeover/)