Updated on November 03, 2023A currency peg is a monetary policy strategy in which a country’s currency is pegged to the value of another currency or a basket of currencies.
Overall, currency pegs can be a complex and controversial policy tool. They can be used to achieve a variety of economic goals, but also come with a number of challenges.
Does India peg its currency?
No, India does not peg its currency. The Indian Rupee operates under a managed floating exchange rate system, where its value is determined by market forces of demand and supply, with occasional interventions by the Reserve Bank of India (RBI) to stabilize volatility.
What is a currency peg?
A currency peg, also known as a fixed exchange rate, occurs when a country ties its currency’s value to another currency, such as the US Dollar, or to a basket of currencies. This helps stabilize exchange rates for trade and investment.
Which countries peg their currencies?
Countries like Saudi Arabia, the United Arab Emirates, and Hong Kong peg their currencies to the US Dollar. Some smaller economies use currency pegs to maintain economic stability.
Is the Indian currency pegged to gold?
No, the Indian Rupee is not pegged to gold. It follows a managed floating exchange rate system and is not tied to any commodity or currency.
What are the disadvantages of a currency peg?
A major disadvantage is the risk of speculative attacks, where traders bet against the pegged rate, potentially depleting a country’s foreign reserves. Pegging can also limit a country’s ability to respond to economic shocks.
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