What is 'Fixing'

Fixing is the practice of arbitrarily setting the price of a good, commodity or currency. Fixing represents a refusal to allow the forces of a free market to determine the price of the good. It can be either legal or illegal depending upon who mandates the fix, such as the government or a group of merchants. Although, fixing usually refers to price fixing, it can be applied to input costs or fixing supply. For example, governments can mandate the quantity of goods produced. This practice is largely a feature of centrally planned command economies.


Fixing a price creates numerous inefficiencies in an economy. The price of a good or service is determined by supply and demand. Where these two forces meet is what determines the price. If the price of a good or service is arbitrarily set too high, then this creates a situation where supply exceeds demand. More people are willing to supply the good at the high price than are willing to buy it. The opposite is true for a price that is arbitrarily set too low. This creates a situation where people's demand for the under-priced good exceeds other people's willingness to supply it.

Fixing can take many forms. OPEC artificially quadrupled the price of oil in the 1970s and effectively cut off its supply to much of the western world. Cartels are formed for the purpose of fixing the price of one or more of the goods that they produce, such as oil or other commodities. Capitalist governments also fix the prices of certain goods to promote smaller companies to enter the industry, but this is rare.

Fixed Exchange Rate

One of the most common forms of price fixing is on the international foreign exchange market. This is commonly known as a currency peg, where the government of a smaller country fixes the price of its currency to the currency of a larger economy. For example, many countries in the Persian Gulf, like the United Arab Emirates and Qatar, peg their currencies to the U.S. dollar. They tend to do this because their economies are small and can be subjected to external market forces that are difficult to predict. Mostly they do this because their economies are highly dependent on oil exports that are priced in U.S. dollars on the international petroleum markets.

Until 1973 the U.S. dollar was fixed to the price of gold, known as the gold standard, and other world currencies were fixed to the dollar. After 1973, the gold standard ended, and the dollar became a floating exchange rate, which effectively ended the fixing of its price to other currencies. 

  1. Fixed Cost

    A fixed cost is an expense that remains the same regardless of ...
  2. Financial Information Exchange ...

    Financial Information eXchange (FIX) is an electronic communication ...
  3. Fixed Capital

    Fixed capital includes the assets - such as property, plant and ...
  4. London Spot Fix

    The London spot fix is a daily rate set of each precious metal ...
  5. Fixed Price

    The fixed price leg of a swap is one that is based on an unchanging ...
  6. Floating Exchange Rate

    A floating exchange rate is a regime where a nation's currency ...
Related Articles
  1. Trading

    Top Exchange Rates Pegged to the U.S. Dollar

    From the end of World War II until around 1971, all countries in the IMF pegged their currencies to the U.S. dollar. Today, many still do.
  2. Trading

    Currency exchange: Floating rate versus fixed rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers regarding the difference between floating and fixed exchange rates.
  3. Trading

    Pegged exchange rates: The pros and cons

    A pegged currency can give a country many advantages, but these advantages come at a price. Learn more today!
  4. Trading

    The Hazards Of Currency Movements

    Devaluation and revaluation are official changes in the value of a nation’s currency in relation to other currencies. The terms are generally used to refer to officially sanctioned changes in ...
  5. Investing

    The Pros And Cons Of A Pegged Exchange Rate

    A pegged exchange rate occurs when one country fixes its currency’s value to the value of another country’s currency. But it has both pros and cons.
  6. Trading

    What causes a currency crisis?

    Find out what can cause a currency to collapse and what central banks can do to help in times of currency crisis.
  7. Trading

    How the U.S. Dollar Became the World's Reserve Currency

    The U.S. dollar was first minted in 1914. Find out what occurred during the last century to make the U.S. dollar the world's reserve currency.
  8. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  9. Investing

    Chief Economist on Stocks & Fixed Income

    Joe Davis, Vanguard's Global Chief Economist, shares his take on equities and fixed income in today's market.
  1. How do you account for changes in the market value of various fixed assets?

    Understand how to account for changes in the fair market value of a company's fixed assets. Learn what accounting methods ... Read Answer >>
  2. What are some examples of fixed assets?

    Fixed assets are assets that have a useful life of more than one year. Fixed assets include property, plant, and equipment ... Read Answer >>
  3. How do current assets and fixed assets differ?

    Current assets are short-term assets that are used up within one year. Fixed assets are physical assets and have a life of ... Read Answer >>
  4. How is working capital different from fixed capital?

    Understand the differences between working capital and fixed capital, including definitions and examples of how businesses ... Read Answer >>
Trading Center