Could you please explain what a pegged exchange rate is? I'm curious to understand how it differs from a floating exchange rate and what are the advantages and disadvantages of using a pegged exchange rate system. Additionally, could you provide some examples of countries that have implemented a pegged exchange rate system in the past or present?
6 answers
ShintoBlessing
Fri Aug 09 2024
A pegged exchange rate, or a fixed exchange rate, refers to a monetary policy tool where the value of a currency is linked to another currency or a commodity like gold. This system ensures stability and predictability in currency values, allowing for easier international trade and investment.
CryptoGuru
Fri Aug 09 2024
There are two primary methods for countries to establish their currency's value in the global market. One approach is to peg the domestic currency to the value of a major international currency, such as the US dollar or the euro.
Martina
Fri Aug 09 2024
The second method involves pegging the currency to a basket of currencies, which takes into account the trade and economic relationships of the country with various trading partners. This approach helps to balance the effects of fluctuations in individual currencies.
VoyagerSoul
Fri Aug 09 2024
In both cases, the central bank of the country intervenes in the foreign exchange market to maintain the pegged rate. This involves buying or selling domestic or foreign currency as needed to keep the exchange rate within a specified range.
Sara
Thu Aug 08 2024
Pegged exchange rates have their advantages and disadvantages. On the one hand, they provide stability and reduce uncertainty for businesses and investors. On the other hand, they limit the ability of the country to use monetary policy to stimulate economic growth.