Fixed vs floating exchange rates: What they mean & why they matter for your money transfer

When sending money overseas, you want your loved ones to get the most value possible. To achieve this, you compare the exchange rate between your location and that of your destination country. Exchange rates are set in two ways: fixed or floating.
Think of a fixed currency regime like train travel—predictable but less flexible.

Meanwhile, a floating exchange rate is similar to a ride-hailing service. Their fees vary, depending on availability and traffic.

Each currency regime influences everything from global trade to individual finances, such as travel costs and remittance amounts. By understanding each system well, you can plan your remittances more wisely. Let’s examine each category in greater detail.

What is a fixed exchange rate?

When a country has a fixed exchange rate system, its currency’s value is pegged to another. A fixed exchange rate example is the Hong Kong dollar¹ or the Saudi riyal², both pegged to the US dollar. As a result, these currencies will always be exchanged at the same price as the “currency peg.” Some nations, like Kuwait³, use a "basket peg"—its dinar is pegged to a range of currencies, including USD.

For a country to keep its currency’s value at the official level, its central bank does two things:

1. First, it maintains a high level of foreign reserves (for instance, US dollars or euros). The central bank draws from these reserves whenever the local currency starts to move too far from its official value.
2. Second, it either buys or sells its own currency to maintain a steady exchange rate.

• When the local currency "weakens" or its value falls relative to another currency, the central bank uses foreign reserves to buy its own currency. This step creates demand and raises the currency's value.
• When the local currency becomes "too strong" or its value rises too significantly, the central bank sells its own currency and buys foreign currency. The increased supply of local currency in the market brings down its value.

This "balancing act" helps stabilize prices. For someone sending money home, such a stable exchange rate means you and your relatives can expect a predictable amount during every remittance.

What is a floating exchange rate?

Next, let’s consider floating or flexible exchange rates. Under this system, a floating currency’s value is determined by the market's supply and demand. The following factors influence these market forces:

These fluctuations in supply and demand occur constantly, minute by minute, and in real time. They lead to exchange rate volatility, which is the main difference from fixed currency regimes.

Floating exchange rate examples include the US dollar, euro, British pound, and Japanese yen.

What are the pros and cons of fixed and floating exchange rate systems?

Now that we’ve covered both systems, what are the benefits and drawbacks of each? This fixed vs floating exchange rate comparison table aims to help you understand why some money transfers feel predictable while others fluctuate, affecting the actual amount cashed out by your loved ones overseas.

Fixed exchange rate

Floating exchange rate

In summary, fixed rates bring stability, while floating rates bring flexibility. Each one has a different impact on your transfer.

What is a managed exchange rate system?

Although fixed and floating systems are the primary models, most governments adopt an approach that combines both elements—the managed exchange rate, also referred to as a managed float.

The system allows the market to determine the currency's worth. However, the central bank intervenes to manage exchange rates when the currency deviates sharply from the preferred range. Expected inflation, sharp movements in capital flows, or the movement of money for business, trade, or investment can also trigger intervention. 

This hybrid exchange rate system only prevents excessive fluctuations. In effect, your transfers may reflect market shifts and government adjustments—providing you with a mix of predictability and risk.

Examples include the Chinese yuan, Singaporean dollar, and Vietnamese dong. In practice, major world currencies are managed currencies to some extent.

Why do exchange rate systems matter in money transfers?

Exchange rate systems are more than theories or abstract numbers. The type of system that prevails in your home country will directly affect the final sum your relatives or friends get.

Fixed rates can be helpful for budgeting essentials, such as food, electricity, water, and school or medical expenses. Recipients know exactly how much money will arrive monthly, allowing them to manage obligations smoothly.

Meanwhile, a floating exchange rate can give you extra value for your money. When the rate rises at the right time, your loved ones can have additional funds for house repairs or emergency savings. However, the reverse can happen with a sudden dip in rates, leaving your family with less. That's why understanding the system matters.

With BOSS Money, money transfers are simple and transparent—you can view the rate before you send. It’s close to the interbank rate, without hidden markups. This way, your family gets more of what you send, regardless of which system their country uses. 

Wondering how you can stretch your money’s worth just a little further? You’ll discover that in the next section as we discuss how to strategically compare rates and time your transfers.

Pro tips for saving on international transfers

Hidden fees and small changes in exchange rates can shrink the value of your remittance. Here are four pro tips to help you save and bring more money into your loved ones' hands, whether you’re dealing with a fixed vs. floating system.

Compare the service provider's rate with the interbank rate.

The interbank rate is the midpoint between the buy and sell prices for a currency. This makes it a reference point for the true value of a currency before providers add the markups. 

You can check the interbank rate on XE.com, Oanda.com, and similar finance sites or apps before remitting money. Then, find a transfer company whose rates are closest to the interbank rate. After conducting an exchange rate comparison, choose the company offering the lowest transfer cost or processing fee combined with the best exchange rate you can get. 

The recipient gets fewer units of the local currency if the provider's rate is lower than the interbank rate when converting to, say, USD. Meanwhile, expect to pay more dollars upfront if the company's rate is higher. The gap typically hides markups—or additional percentages to make a profit on the transfer—that lower the value of your remittance. Also, online non-bank providers typically offer cheaper transfers than banks.

Avoid airports and "tourist" exchangers.

Although they may appear convenient, these businesses often charge high transaction fees and commissions per exchange, even if they say "0% commission" or "Zero Fees." Your $1,000 transfer may drop by $50 or more. Get local currency at a better rate by exchanging money before your trip.

Choose a remittance provider with a locked-in (fixed) rate.

In this context, "fixed rate" doesn't refer to the value set by the government or central bank. It means the provider guarantees the rate it shows you at the moment you send money. That way, your loved ones always get the exact amount you expect after your international money transfer. Boss Money follows this transparent process, so you avoid hidden markups or surprises.

Time your money transfers effectively. 

The best time to send money is during weekdays, particularly on regular work days. Processing and delivery can be delayed if you remit on holidays or weekends when banks and financial institutions are closed. Extra tip: Avoid using your credit card to send money overseas, as added costs, such as interest and cash advance fees, usually apply.

Conclusion

Every country makes the most of its exchange rate system—whether it's the stability of the fixed rate or the flexibility of the floating rate. As a remittance sender, however, your priority is not the system in theory but ensuring the maximum amount reaches your loved ones.

With BOSS Money, you see the rate in advance, without surprises, and your loved ones get more.

Sources: all third party information obtained from applicable website as of September 23, 2025

1. https://www.hkma.gov.hk/eng/key-functions/money/linked-exchange-rate-system/how-does-the-lers-work/
2. https://www.bis.org/publ/bppdf/bispap73v.pdf
3. https://www.cbk.gov.kw/en/monetary-policy/exchange-rate-policy

This article is provided for general information purposes only and is not intended to address every aspect of the matters discussed herein. The information in this article is not intended as specific personal advice. The information in this article does not constitute legal, tax, regulatory or other professional advice from IDT Payment Services, Inc. and its affiliates (collectively, “IDT”), and should not be taken or used as such by any individual. IDT makes no representation, warranty or guaranty, whether express or implied, that the content in this article is current, accurate, or complete. You should obtain professional or other substantive advice before taking, or refraining from, any action on the basis of the information in this article.