Definition – What does Adjustable Peg mean?
An adjustable peg refers to a currency policy where a country’s domestic currency is valued in terms of a foreign currency, with the actual conversion rate being changed periodically. Essentially, an adjustable peg is a currency peg that can be moved whenever the government decides. The issue with adjustable pegs – and all currency pegs – is that they require significant efforts and control in order to defend them from market forces.
ForexTerms explains Adjustable Peg
A peg is usually put in place to fix a weaker currency to a stronger one for the purposes of trade. However, the tendency for nations to try and tweak their pegs to gain a competitive advantage have made currency pegs – fixed and adjustable – politically difficult to defend on the international stage. Most currencies in the world have eliminated pegs in favor of floating their currencies against each other in the foreign exchange market. That said, China is a notable exclusion to this overall trend.
