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 pegged exchange rate in the ERM2 regime has functioned smoothly since the launch of the euro in 1999, even during periods of financial stress in the eurozone.
Economists said a credible new support package would support the fiscal sustainability and the pegged exchange rate regime.
A credible new support package would also support the sustainability of the pegged exchange rate regime.
But with foreign reserves of $2.8 billion at the end of November covering only 1.4 months of imports of goods and services and less than 10 per cent of Bahrain's short-term external debt, pressure on Bahrain's pegged exchange rate regime is now at its highest since the formal peg of the dinar to the dollar was introduced in 2001.
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.
"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 study of the Tequila Crisis by noted American economist Frederic Mishkin back in 1999 concluded rather urgently that the first lesson for emerging markets to draw from the Mexican experience is that: "pegged exchange rate regimes are extremely dangerous." A pegged exchange rate is precisely what Lebanon has maintained for more than 20 years, with no change to the peg since 1997.
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.
It has been suggested that a pegged exchange rate regime may help to lower the degree of monetary accommodation.
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.