Trade · 6 pages · 12 min
How a peg differs from a float
A peg is a promise to hold a stated rate, while a float lets buying and selling set the price.
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From the opening
Under a peg, the authorities announce a rate against another currency or a basket and act to keep the market near that rate. Under a float, they make no such promise, and the price moves as people buy and sell the currency. The opening covers a peg defends a stated rate, a float makes no fixed promise, and defense spends or gains reserves.
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Inside
- A peg defends a stated rate
- A float makes no fixed promise
- Defense spends or gains reserves
- A quiet market is not a peg
- Where the idea stops applying
- A distinction worth keeping
Sources
- Fixed versus floating exchange rates
- Central bank foreign-exchange intervention