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We have discussed Black Wednesday and the Asian financial crisis in class. The biggest reason for...

We have discussed Black Wednesday and the Asian financial crisis in class. The biggest reason for the events was a pegged currency. Why do you think that there still are countries with pegged currencies? Find one and explain why you think they still peg?

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Answer #1

Pegging is a tool of controlling a country's currency rate of exchange rate by reconciling it to another country's currency or controlling an asset's price before the option expire date. Many countries try to balance their currencies by pegging it to U.S dollars, which is globally renowned currency.

Countries choose a fixed exchange rate system regarding the pupose of export and trading. By handling its domestic currency a country will easily keep its exchange rate down. This helps competitiveness environment to boost for its goods as they are selling in Foreign countries. For example, let's take the Canadian (CAD)/EURO (EUR) exchange rate. The Euro is more stronger than the CAD, a shirt or any cloth can cost a company more than double and need more funds to manufacture in a Canadian Union country, compared to Europe.This is the reason why pegging is necessary for the countries and the reason of the financial crises were not only due to the pegged currencies there are many more factors behind the black Wednesday or financial crises.

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