From the end of World War II until around 1971, most currencies were in some form pegged (or fixed) to the U.S. dollar, which was itself fixed to gold. Beginning in the early 1970s when the Bretton Woods Fixed Exchange System collapsed, governments began floating their own currencies. Today, though, two types of currency exchange rates are still in existence, floating and fixed. Major currencies, such as the Japanese yen, euro, and the U.S. dollar, are floating currencies—their values change according to how the currency is being traded on forex (FX) markets. Fixed currencies, on the other hand, derive value by being fixed (or pegged) to another currency. In this article, we will discuss exchange rates that continue to peg to the U.S. dollar. 

Key Takeaways

  • Today, there are two types of currency exchange rates—floating and fixed.
  • Major currencies, including the U.S. dollar, are floating currencies—their values change according to how the currency is being traded on forex markets.
  • Fixed currencies derive value by being fixed (or pegged) to another currency.

When countries participate in international trade, they need to ensure that the value of their currency remains relatively stable. Countries choose to peg their currency to safeguard the competitiveness of their exported goods and services. A weaker currency is good for exports and tourists, as everything becomes cheaper to purchase.

Countries use a pegging strategy to ensure their goods and services remain competitive instead of being negatively impacted by the constant fluctuation of a floating currency’s exchange rate. 

Many, though, chose to maintain a fixed policy and today there are still a significant number of currencies pegged to the U.S. dollar.

Why Currencies Peg to the U.S. Dollar

Countries have different reasons for pegging to the dollar. Most of the Caribbean islands (Aruba, Bahamas, Barbados, and Bermuda, to name a few), peg to the U.S. dollar because their main source of income is derived from tourism paid in dollars. Fixing to the U.S. dollar stabilizes the economies and makes them less volatile. In Africa, many countries peg to the euro. Djibouti and Eritrea, pegged to the U.S. dollar, are the exceptions. In the Middle East, many countries (including Jordan, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) peg to the U.S. dollar for the stability—the oil-rich nations need the United States as a major trading partner for oil. In Asia, Macau and Hong Kong fix to the U.S. dollar. China, on the other hand, has been embroiled in controversy about its currency policy. While it does not officially peg its currency, the Chinese yuan, to a basket of currencies that include the US dollar, it does manage it through to benefit its manufacturing and export-driven economy.

Major Fixed Currencies

Below is a list of some of the national economies and the corresponding rates that currently peg to the U.S. dollar as of October 2018.


Country



Region



Currency Name



Code



Peg Rate



Rate Since



Bahrain



Middle East



Dollar



BHD



0.376



2001


Belize Central America Dollar BZ$ 2.00 1978

Cuba



Central America



Convertible Peso



CUC



1.000



2011



Djibouti



Africa



Franc



DJF



177.721



1973



Eritrea



Africa



Nakfa



ERN



10.000



2005



Hong Kong



Asia



Dollar



HKD



7.75-7.85



1998



Jordan



Middle East



Dinar



JOD



0.709



1995



Lebanon



Middle East



Pound



LBP



1507.5



1997



Oman



Middle East



Rial



OMR



0.3845



1986



Panama



Central America



Balboa



PAB



1.000



1904



Qatar



Middle East



Riyal



QAR



3.64



2001



Saudi Arabia



Middle East



Riyal



SAR



3.75



2003



United Arab Emirates



Middle East



Dirham



AED



3.6725



1997


Source: Investmentfrontier.com

The Bottom Line

It makes sense for many small nations to fix their currency to the U.S. dollar, especially if the primary source of revenues comes in the form of the dollar. This pegged strategy helps stabilize and secure small economies which may otherwise be unable to withstand volatility. Conversely, large and growing economies will find it hard over time to maintain a fixed currency policy, which will eventually snowball into an outsized need to buy more and more dollars to maintain the proper ratio.