Crawling Peg

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Exchange Rate

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

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

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

    An agreement reached by a group of 10 countries (G10) in 1971 ...
  5. Fixed Exchange Rate

    A country's exchange rate regime under which the government or ...
  6. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by ...
Related Articles
  1. A Primer On The Forex Market
    Options & Futures

    A Primer On The Forex Market

  2. Currency Exchange: Floating Rate Vs. ...
    Forex Education

    Currency Exchange: Floating Rate Vs. ...

  3. 6 Factors That Influence Exchange Rates
    Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

  4. Dual And Multiple Exchange Rates 101
    Forex Education

    Dual And Multiple Exchange Rates 101

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center