How many currencies are pegged to the dollar

Kazakhstan, Turkmenistan and Vietnam are others tying to the dollar. China has had a history of both officially and unofficially pegging to the U. Officially, China may have the position that it uses a basket of currencies, but it does not disclose the relative weights of those currencies. Personal Finance Budgeting. What Currencies Are Pegged to the Dollar?

By Scott Shpak. Close-up of an exchange rate board of foreign currencies. The Americas. Close-up of Gulf of Mexico on world map. Video of the Day. Central banks use the dollars to purchase U. They do this to receive interest on their dollar holdings. If they need to raise cash to pay their companies, they may sell Treasurys on the secondary market. A country's central bank will monitor its currency exchange rate relative to the dollar's value.

If the currency falls below the peg, it needs to raise its value and lower the dollar's value. It does this by selling Treasurys on the secondary market. That gives the bank cash to purchase local currency. By adding to the supply of Treasurys for sale in the market, their value drops, along with the value of the dollar. This adjustment reduces the supply of local currency, raising its value, and the peg is restored.

Keeping the currencies equal is difficult since the dollar's value changes constantly. That's why some countries peg their currency's value to a dollar range instead of the exact number. China switched from a fixed exchange rate in July It is now more flexible but still managed with a close eye. China's currency power comes from its exports to America. The exports are mostly consumer electronics, clothing, and machinery.

In addition, many U. The finished goods become imports when they are shipped back to the United States. Chinese companies receive American dollars as payment for their exports, which they deposit into their banks in exchange for yuan to pay their workers.

Local Chinese banks transfer dollars to China's central bank, which stockpiles them in its foreign currency reserves. The Chinese Central Bank holdings reduce the supply of dollars available for trade. That puts upward pressure on the dollar. China's central bank also uses the dollars to purchase U. It needs to invest its dollar stockpile into something safe that also gives a return, and there's nothing safer than Treasurys.

China knows this will further strengthen the dollar and lower the yuan's value. The U. One reason is that most financial transactions and international trade are made in U. Countries that are heavily reliant on their financial sector peg their currencies to the dollar. Examples of these trade-reliant countries are Hong Kong, Malaysia, and Singapore.

Other countries that export a lot to the United States peg their currencies to the dollar to maintain competitive pricing. They try to keep the value of their currency lower than the dollar. The lower currency value gives them a comparative advantage by making their exports to America cheaper. Fixing to the U. In Africa, many countries peg to the euro. The exceptions being Djibouti and Eritrea which peg their own currencies to the U.

China, on the other hand, has been embroiled in controversy about its currency policy. While China does not officially peg the Chinese yuan to a basket of currencies that includes the U. Below is a list of some of the national economies and the corresponding rates that currently peg to the U. It makes sense for many small nations to fix their currency to the U.

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.

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What Does Pegging Mean? Why Peg to the U. Major Fixed Currencies. The Bottom Line. Key Takeaways There are two types of currency exchange rates—floating and fixed.

The U.