Economics Exchange Rate Systems Questions
A currency peg is a fixed exchange rate system in which a country's currency is tied or pegged to another currency, typically a major international currency such as the US dollar or the euro. The exchange rate is set and maintained at a fixed level, and the central bank of the country intervenes in the foreign exchange market to ensure that the exchange rate remains within the specified range. This system is used to stabilize the value of the domestic currency and promote economic stability, as it reduces exchange rate volatility and provides certainty for international trade and investment.