The currency band is a system of exchange rate

Exchange rate

In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

s by which a floating currency is backed by hard money

Hard money

Hard money may refer to:* Hard currency, globally traded currency that can serve as a reliable and stable store of value* Hard money donations to candidates for political office* Hard money currency policies...

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A country selects a range, or "band", of values at which to set their currency, and returns to a fixed exchange rate

Fixed exchange rate system

A fixed exchange-rate system is a currency system in which governments try to keep the value of their currencies constant against one another....

 if the value of their currency shifts outside this band. This allows for some revaluation, but tends to stabilize the currency's value within the band. In this sense, it is a compromise between a fixed (or "pegged") exchange rate and a floating exchange rate. For example, the exchange rate of the renminbi

Renminbi

The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...

of the mainland

Mainland China

Mainland China, the Chinese mainland or simply the mainland, is a geopolitical term that refers to the area under the jurisdiction of the People's Republic of China . According to the Taipei-based Mainland Affairs Council, the term excludes the PRC Special Administrative Regions of Hong Kong and...

 of the People's Republic of China

People's Republic of China

China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...

 has recently been based upon a currency band; the European Economic Community

European Economic Community

The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...

's "snake in the tunnel

Snake in the tunnel

The snake in the tunnel was the first attempt at European monetary cooperation in the 1970s, aiming at limiting fluctuations between different European currencies...

" was a similar concept that failed, but ultimately led to the establishment of the European Exchange Rate Mechanism

European Exchange Rate Mechanism

The European Exchange Rate Mechanism, ERM, was a system introduced by the European Community in March 1979, as part of the European Monetary System , to reduce exchange rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of...

 (ERM) and ultimately the Euro

Euro

The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

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