What is a currency peg? How fixed exchange rates work
By SendPay Business · · 2 min read
A currency peg is when a country fixes its currency's exchange rate to another currency, usually the US dollar or the euro, instead of letting the market set it freely.
Real examples
- Saudi riyal: fixed at 3.75 to the US dollar.
- UAE dirham: fixed at 3.6725 to the US dollar.
- Hong Kong dollar: kept between 7.75 and 7.85 to the US dollar.
- Danish krone: held close to a central rate against the euro.
How a peg is held
The central bank buys or sells its own currency, using its foreign currency reserves, to keep the rate where it wants it. It may also move interest rates in step with the currency it is pegged to.
When a peg breaks
If the reserves run low or the cost of holding the peg gets too high, a central bank may let it go. In January 2015 the Swiss National Bank dropped its cap on the franc against the euro, and the franc jumped sharply within minutes.
Where SendPay fits
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Where does a pegged currency sit in its band?
Check the Hong Kong dollar, riyal, dirham or krone.
Currency peg calculator →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.