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Pegged Rate

PEGD RAYT /pɛɡd reɪt/

nounC1UPSC

formalacademic

An exchange rate policy where a country's currency value is fixed against the value of another single currency, a basket of currencies, or a commodity like gold.

Requires the government or central bank to intervene in the market to maintain the fixed rate.

The story behind the word. The word 'peg' has Germanic origins, referring to a wooden or metal pin used to fasten things. When an exchange rate is 'pegged,' it's like a government or central bank has used a 'peg' to fix its currency's value to another. It's not allowed to move freely, but is 'fastened' in place.

Word relationships

fixed exchange rate: Essentially the same, 'pegged' emphasizes the attachment to another value.

floating rate: An exchange rate determined by market forces without government intervention.

Collocations

fixed pegged rate
soft pegged rate
hard pegged rate
currency pegged rate

Example sentences

"Many smaller economies maintain a pegged rate to a major currency like the US dollar to ensure stability and predictability for trade." Discussing monetary policy.
"The gold standard was a system where currencies had a pegged rate to a specific amount of gold." Analyzing economic history.

Memory hook

Think of a 'PEG' holding something in place. A PEGGED RATE is when a currency's value is 'pegged' or fixed to another currency, not allowed to move freely. Fixed pin

When not to use

Do not use 'pegged rate' for a currency whose value is determined purely by market forces; 'floating rate' is the opposite.

Fun facts

Hong Kong has maintained a pegged rate to the US dollar since 1983, a system known as a currency board.

Related words

Floating Rate, Exchange Rate

Explore more words

Hyperinflation, Monetary Policy, Derivatives, embargo, barter