What is a Currency Peg A Complete Guide for Forex and CFD Traders...

1. What is a Currency Peg? A Complete Guide for Forex and CFD Traders Introduction: What is a Currency Peg? A currency peg​ y pegs the value of its currency to another currency or a currency basket. Rather than permitting the market to determine the exchange rate (whic h is the practice for most of the major currencies), the central bank uses active intervention to keep the exchange value at a predetermined value ​ . or fixed exchange rate​ is established when a countr The difference in currency pegged versus floating currency seems to be quite simple. Currencies that float, such as the US dollar, the euro, and t he British pound change in value on a constant basis based on supply an d demand. A pegged currency will stay within a narrow band of value a gainst its currency peg. Think of a pegged currency like a voucher for c andy, you can always exchange that voucher for candy​ andy gets scarce or plentiful; you will still receive the same amount of c andy when exchanging your voucher.fx trader regardless if c

2. History and Classic Examples of Currency Pegs Pegs of currency emerged as countries desired stability in their internati onal trade and investment. After World War II the Bretton Woods syste m pegged most major currencies to the US dollar, which was convertibl e to gold; though that system collapsed in 1971, many countries went on to use pegs to anchor their monetary system. Countries typically establish currency pegs for three main reasons: to sta bilize prices and control inflation through monetary discipline establishe d in a country with a stronger economy, to promote trade and investmen t by removing exchange rate uncertainty and third, to establish credibilit y for their central banks, particularly in developing economies with hist ories of monetary instability. trade forex The Hong Kong dollar peg is regarded as one of the most successful in history. Established in 1983 during a crisis of confidence, the peg has su rvived the 1987 stock market crash, the 1997 Asian financial crisis, the 2008 global financial crisis, and more recently geopolitical conflict. The HKMA holds large amounts of foreign exchange reserves and has defe nded the peg during this time through market purchases, as well as polic y adjustments.