Pegged exchange rate

Pegged exchange rate

Exchange rate whose value is pegged to another currency's value or to a unit of account.

Fixed Exchange Rate

An exchange rate for a currency where the government has decided to link the value to another currency or to some valuable commodity like gold. For example, under the Bretton Woods System, most world currencies fixed themselves to the U.S. dollar, which in turn fixed itself to gold. A government may fix its currency by holding reserves of the peg (or the asset to which it is fixed) in the central bank. For example, if a country fixes its currency to the British pound, it must hold enough pounds in reserve to account for all of its currency in circulation. Importantly, fixed exchange rates do not change according to market conditions. It is also called a pegged exchange rate.
References in periodicals archive ?
The report added that high-frequency financial indicators, following the initial period, are improving and the pegged exchange rate remains sustainable.
For Lebanon to maintain its pegged exchange rate to the dollar, a "significant fiscal adjustment is inescapable," it added.
Generally, in a pegged exchange rate regime, foreign currency reserves must be sufficient to cover 100% of reserve money (M0) and, as a simple rule of thumb, cover three months of import of goods and services, and QCB reserves are significantly higher than these requirements.
Any political risk event in the region threatening stability within Lebanon could adversely affect banking system deposit growth, the pegged exchange rate and refinancing of public sector debt.
The GCC's large foreign-currency reserves provide ample room to maintain pegged exchange rate regimes for several years, even in an adverse oil price scenario," senior analyst Mathias Angonin said at a Press briefing.
A pegged exchange rate is precisely what Lebanon has maintained for more than 20 years, with no change to the peg since 1997.
Due to pegged exchange rate regimes, the modest increase in interest rates in the US beyond the first half of 2015 will result in higher domestic interest rates; however, the pass-through of policy rates to lending rates is generally weak in the GCC countries, and the impact of rising interest rates is likely to be limited.
The ratings are constrained by our view that the quality of Oman's public institutions and governance is moderate, that high fiscal, external and economic dependence on volatile hydrocarbons receipts will persist, and that monetary policy flexibility is limited by the (US dollar) pegged exchange rate," it said.
In the countries with pegged exchange rate regimes (exchange rate serving as the nominal anchor) it seems that interest rates were slightly more vulnerable to the unexpected demand shock.
Finance Minister Rimantas Sadzius has explained that this step is not only "necessary" after two decades of a pegged exchange rate regime, first to the dollar and later to the euro.
ClickPress, Thu Jan 02 2014] Although Denmark is not part of the eurozone monetary union, its deep financial and trade links have been strengthened by its pegged exchange rate regime, leaving the economy significantly exposed to spillover effects of the eurozone debt crisis.
Pegged exchange rate is a regime in which the central bank announces an official (par value) of its currency and then maintains the actual market rate within a narrow band by intervening in the forex market.