To peg, or not to peg?

A fixed system, also known as the “currency peg”, refers to a country’s exchange-rate being pegged to another country’s currency (usually the US dollar), so that people know what exchange rate they are expecting for their transactions. With a stable exchange rate, inflation and interest rates are less likely to fluctuate, boosting up the confidence of importers and exporters in trades. But by choosing this path, the central bank of the pegging nation gives up its monetary independence. It also needs to keep huge reserves to mirror any speculators’ actions that may......

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