Adjustable peg exchange rate

Definition adjustable peg

An adjustable peg exchange rate is a system where a currency is fixed to a certain level against another strong currency such as the Dollar or Euro. Usually, the peg involves a degree of flexibility of 2% against a certain level. However, if the exchange rate fluctuates by more than the agreed level, the Central bank needs to intervene to maintain the target exchange rate peg.

  • An adjustable peg system usually allows countries to revalue their peg – if it is necessary to regain competitiveness.
  • The adjustable peg is effectively a semi-fixed exchange rate.
  • The Bretton Woods system of the 1960s and 1970s was an example of an adjustable peg system.
  • Many Asian countries have an unofficial peg against the dollar. However, with the weakening dollar, many countries are considering revaluing their target exchange rate

Pound in the ERM

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This was the period when the UK was in the ERM – a semi-fixed exchange rate. However, rather than adjust the peg, the UK just left in 1992. The idea of the ERM is to avoid changing exchange rate target.

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