Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

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Under a fixed exchange rate system, the exchange rate between two currencies is fixed, and the central bank intervenes in the foreign exchange market to maintain the exchange rate. As a result, if there is inflation in the U.S., the fixed exchange rate will cause inflation to be transmitted to other countries that maintain a fixed exchange rate with the U.S. On the other hand, under a freely floating exchange rate system, the exchange rate is determined by market forces, and the impact of U.S. inflation on other countries' inflation may be mitigated by changes in the exchange rate.

Under a Fixed Exchange Rate System, U