Currency Peg
Currency peg is a policy of a country to maintain a fixed exchange rate with another currency or a basket of currencies. This policy is usually adopted by countries to maintain a stable exchange rate and to protect their economies from the volatility of the foreign exchange market. The currency peg is usually maintained by the central bank of the country, which intervenes in the foreign exchange market to buy or sell its currency in order to maintain the desired exchange rate.
History of Currency Peg
The concept of currency peg has been around since the 19th century, when countries began to adopt the gold standard. Under the gold standard, countries would fix the value of their currency to a certain amount of gold. This allowed countries to maintain a stable exchange rate and protect their economies from the volatility of the foreign exchange market. After the collapse of the gold standard in the early 20th century, countries began to adopt the Bretton Woods system, which allowed countries to peg their currencies to the US dollar. This system was in place until the early 1970s, when it was replaced by the current system of floating exchange rates.
Comparison Table
| Currency Peg | Floating Exchange Rate |
|---|---|
| Fixed exchange rate | Fluctuating exchange rate |
| Central bank intervention | No central bank intervention |
| Stable exchange rate | Volatile exchange rate |
Summary
Currency peg is a policy of a country to maintain a fixed exchange rate with another currency or a basket of currencies. This policy is usually adopted by countries to maintain a stable exchange rate and to protect their economies from the volatility of the foreign exchange market. The currency peg is usually maintained by the central bank of the country, which intervenes in the foreign exchange market to buy or sell its currency in order to maintain the desired exchange rate. For more information about currency peg, you can visit websites such as Investopedia, The Balance, and The Economist.
See Also
- Exchange Rate
- Floating Exchange Rate
- Fixed Exchange Rate
- Currency Swap
- Currency Futures
- Currency Options
- Currency Arbitrage
- Currency Risk
- Currency Hedging
- Currency Crisis
