What is currency peg?

Currency pegging is when a country attaches, or pegs, its exchange rate to another currency, or basket of currencies, or another measure of value, such as gold. Pegging is sometimes referred to as a fixed exchange rate.

What is a pegged exchange rate?

A pegged rate, or fixed exchange rate, can keep a country's exchange rate low, helping with exports. Conversely, pegged rates can sometimes lead to higher long-term inflation. Maintaining a pegged exchange rate usually requires a large amount of capital reserves.

What are the benefits of pegging currency?

By pegging its currency, a country can gain comparative trading advantages while protecting its own economic interests. A pegged rate, or fixed exchange rate, can keep a country's exchange rate low, helping with exports. Conversely, pegged rates can sometimes lead to higher long-term inflation.

What is currency exchange rate?

The currency exchange rate is the value of a currency compared to another. While some currencies are free-floating and rates fluctuate based on supply and demand in the market, others are fixed and pegged to another currency.