Also known as “Currency Peg”, “Pegged Currency” refers to a currency where the price is programmed to stay the same as the asset that has been designated. It is a policy that the national government implements to set a specific fixed exchange rate for the country’s currency with foreign currencies or a basket of currencies.
Countries benefit from Pegged Currency in that these stabilize the exchange rate between each other. Such provides long-term predictability of exchange rates for business planning. However, maintaining Pegged Currencies may prove challenging. Being able to do so effectively reduces uncertainty, promotes trade, and ultimately boosts incomes.