LeoGlossary: Peg

2 mo
LeoFinance
1 Min Read
144 words

A policy whereby a government or central bank establishes a fixed exchange rate to the currency of another nation. This effectively sets up an exchange rate policy between the two.

A peg is mostly done to the US Dollar (USD). Here a country sets the value of the currency at a fixed exchange rate to the dollar.

So while the value of the USD will fluctuate, since it is floating, the pegged currency will be stable relative to the USD.

In cryptocurrency, we see stablecoins being pegged to different asset classes. The most common is the USD but other pegs are forming. We also see algorithmic stablecoins being experimented with, pegging the native coin on a blockchain.

If the peg holds, stablecoins can be a better option for commercial transactions due to the lack of volatility.

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