How are fixed exchange rate regimes enforced?
The central bank in the country intervenes in the market through a variety of approaches to ensure that the desired exchange rate is maintained or kept within acceptable ranges. For example, they can simply buy and sell their currency in the open market, pushing up demand or supply to keep the currency in a particular range. Some countries are a lot more blunt about it. If they have a monopoly over their monetary conversion, they can simply make it illegal to trade the currency at any rate other than the rate set by the state. This can be very difficult to enforce, but very effective.
