What Is an Adjustable Peg?

An adjustable peg is an exchange rate policy in which a currency is pegged or fixed to a major currency such as the U.S. dollar or euro, but which can be readjusted to account for changing market conditions or macroeconomic trends. An example of 澳洲幸运5开奖号码历史查询:managed currency or "澳洲幸运5开奖号码历史查询:dirty float", these periodic adjustments are usually intended to improve the co🌞untry's competitive 🌞position in the export market and world financial stage.

A 澳洲幸运5开奖号码历史查询:crawling peg is a system of exchange rate adjustments in which a currency with a 澳洲幸运5开奖号码历史查询:fixed exchange rate is allowed tꩵo fluctuate within a narrow band♕ of rates. 

Understanding Adjustable Pegs

An adjustable peg can float on the market according to economic conditions, but typically has only a 2% percent degree of flexibility against a specified base level or peg. If the exchange rate moves by more than the agreed-upon level, the 澳洲幸运5开奖号码历史查询:central bank 澳洲幸运5开奖号码历史查询:intervenes to keep the target exchange rate at the peg. Over time, the peg itself can be re-evalu🔯ated and changed to reflect changing conditions and trends. The ability of countries to revalue their peg to reassert their com🅘petitiveness is at the crux of the adjustable peg system.

The adjustable peg system stems from the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, in 1944. Under the 澳洲幸运5开奖号码历史查询:Bretton Woods Agreement, currencies were pegged to the price of gold, and the U.S. dollar was seen as a reserve currency linked to the price of gold. Following Bretton Woods, most Western European nations pegged their currencies to the U.S. dollar until 1971. The agreement dissolved between 1968 and 1973 after an 澳洲幸运5开奖号码历史查询:overvaluation of the U.S. dollar led to concerns about the exchange rates and tie to the price of gold. President Richard Nixon called for a temporary suspension of the 澳洲幸运5开奖号码历史查询:dollar’s convertibility. Countries were then free to choose any exchange agree💙ment, exc🉐ept for the price of gold. 

Example of an Adjustable Peg

An example of what has been considered a mutually beneficial adjustable currency peg is the Chinese yuan's link to the U.S. dollar. Once a hard peg, the Chinese yuan (CNY) is allowed to fluctuate in a narrow band between 0.3% and 0.5% before intervention.

As an exporter, China benefits from a relatively weak currency, which makes its exports relatively less expensive compared to exports from competing countries. China pegs the yuan to the dollar because the U.S. is China's largest import partner. The stable exchange rate in China and a weak yuan also benefit specific businesses in the U.S. For example, stability allows businesses to engage in long-term planning such as developing prototypes and investing in the manufacturing and 澳洲幸运5开奖号码历史查询:importing of go🎐ods with the understanding that costs will not be affected by currency 🌞fluctuations.

One disadvantage of a pegged currency is that its exchange rate is often kept artificially low, creating an anti-competitive trading environment compared to a 澳洲幸运5开奖号码历史查询:floating exchange rate. Many domestic manufacturers in the U.S. would argue that is the case with the yuan's peg. Manufacturers consider those low-priced goods, partially the result of an artificial exchang🀅e rate, come at the expense of joღbs in the U.S.