Definition: When a country pegs its currency to the dollar, this means they control the value of their currency so that it rises and falls as the dollar does. Usually, a country will peg its currency to a certain dollar range. When the dollar falls below that range, the country will buy dollars, usually in the form of U.S. Treasuries, to increase the dollar's value back within that range. If the dollar were to rise above the range, the country would sell its Treasuries to lower the dollar's value back within its range.
Countries, like China, will peg their currency to the dollar to maintain competitive pricing. Other countries, like oil exporting nations, must peg their currency to the dollar because their primary export, oil, is sold in dollars. Countries that do a lot of trading with China or oil exporting countries will also peg their currency to the dollar to remain competitive with their customer.
Also Known As: exchange rate, fixed rate
Examples:
Many large economies, such as China, Hong Kong, Malaysia and Singapore, peg their currency to the dollar.
