Crawling Peg


DEFINITION of 'Crawling Peg'

A system of exchange rate adjustment in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates. The par value of the stated currency is also adjusted frequently due to market factors such as inflation. This gradual shift of the currency's par value is done as an alternative to a sudden and significant devaluation of the currency.

BREAKING DOWN 'Crawling Peg'

For example, in the 1990s, Mexico had fixed its peso with the U.S. dollar. However, due to the significant inflation in Mexico, as compared to the U.S., it was evident that the peso would need to be severely devalued. Because a rapid devaluation would create instability, Mexico put into place a crawling peg exchange rate adjustment system, and the peso was slowly devalued toward a more appropriate exchange rate.

  1. Currency

    Currency is a generally accepted form of money, including coins ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  4. Devaluation

    A deliberate downward adjustment to the value of a country's ...
  5. Adjustable Peg

    An exchange rate policy adopted by some countries wherein the ...
  6. Smithsonian Agreement

    An agreement reached by a group of 10 countries (G10) in 1971 ...
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