FIXED Monetary base money supply is adjusted automatically based on market exchange signals (central banks with a hard price rule) OR a currency board arrangement where there is a 1:1 ratio of foreign currency or bonds denominated in that foreign currency and the currency boards monetary base in circulation.
So, say Bulgaria -- which as a currency board -- has defined 2 levs to be equal to one euro and. A 2:1 exchange rate. So, if there are 20 billion levs in circulation then there must be 10 billion euros on deposit at the ECB in the Bulgarian currency board's name or 10 billion in actual euro cash notes in its vaults OR 10 billion in highest quality euro denominated bonds OR (and 99.999% the case) combinations of all of these.
In other words, the Bulgarians have a national currency -- the lev -- that is really tokens for euros and euro denominated assets held by the currency board. The currency board is legally obligated to exchange one form of the currency for the other and vice-versa. And since it has 100% reserves, nobody tries to challenge this exchange rate in the speculation markets.
In my opinion, for a modern economy it is just actually an extra layer of administration so someone can float the fixed currency and make money just like our banks float our check clearing times to make money when we pay our bills. This layer of unnecessary complexity can be easily removed by simply adopting the desired currency (in Bulgaria's case -- the euro) for direct use in question. Maybe an exception can be made for hard cash notes as they make up less than 3% of totally currency outstanding in most first world nations so you can have bills with pretty pictures of national figures native to your own land and all that. Better yet: Just let the chartered banks in your nation in this case print their own cash notes under certain guidelines instead.
But, Bulgaria doesn't need a currency board with 100% reserves to maintain a credible price parity if it wants to keep the lev. It can do so via a normal national bank instead that has a hard price rule fixed rate instead. In this case, the bank monitors the natural exchange activity of the two currencies to immediately detect any deviation of fixed rule price. If the price of the national currency goes up relative to the foreign currency, then that is a signal for the central bank to buy assets (debt) while releasing new national currency into circulation to pay for those assets. It does this until the price in the national currency drops back to where it should be. If it sees the opposite activity, it sells assets and removes currency it got from the sale of those assets from circulation until the price goes back up.
The main reason why nations adopt currency boards is because they so thoroughly trashed their non-currency board money supply in the past that nobody trusts them to manage it well again via that process. Think of the individual equivalent where someone without credit or good credit goes to a bank and forks over $500 for a secured credit card with a $500 limit. That secured credit card is like your own personal 'currency board' arrangement with the bank.
Note, these days no actual reserves in the foreign currency fixed is involved -- the only thing being adjusted is the national currency supply, which the central bank has complete control over. It is possible to operate this way with 0% foreign currency reserves, actually. This is how the gold standard systems worked as invented by the Bank of England in the 19th century and adopted by other central banks. Only they monitored actual cash to gold/gold for cash redemptions at their banks instead of globally instantaneous, traded internet forex pricing that they didn't have back then. They had gold reserves back then to, but they were 40% or lower depending on the nation's central bank.
BTW, whenever someone -- even someone with a Ph.D in Economics -- says that it is 'impossible' to return to a gold standard, they are only admitting their gross ignorance of the central banking version of this process by doing so. It is not only easily possible but would provide a lot more price stability as a result. That is because gold isn't used as money rather the currency is instead and its supply under this system is ALWAYS just right as far as demand is concerned. We did quite well under it in the '50s and '60s, if you recall.
PEGGED: Whereas 'pegged' currencies can range to being similar to the 'central bank with automatic currency supply adjustment example above' to much looser and less regulated options. The central bank wants to avoid declaring a hard price rule policy so it can fiddle with interest rates or do Keynesian witchcraft with the money supply or wants to outright lie about serious of its commitment to keeping currency parity either at the get go or later on (Argentina, Nixon closing the Gold Window, etc.). This is why speculators attack such currencies and why George Soros made a lot of money doing so. China is presently having difficulties and has adjusted its 'peg' to the US dollar as a result, as well. Almost all loose peg arrangements ultimately fail.