{"id":18187,"date":"2016-02-24T12:45:52","date_gmt":"2016-02-24T17:45:52","guid":{"rendered":"http:\/\/olduvai.ca\/?p=18187"},"modified":"2016-02-24T12:45:52","modified_gmt":"2016-02-24T17:45:52","slug":"when-currency-pegs-break-global-dominoes-fall","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=18187","title":{"rendered":"When Currency Pegs Break, Global Dominoes Fall"},"content":{"rendered":"

When Currency Pegs Break, Global Dominoes Fall\u00a0<\/a><\/h3>\n

When a currency peg breaks, it unleashes shock waves of uncertainty and repricing that hit the global financial system like a tsunami.<\/i><\/p>\n

The U.S. dollar has risen by more than 35% against other major trading currencies since mid-2014:<\/b><\/p>\n

\"\"<\/p>\n

If all currencies floated freely on the global foreign exchange (FX) market, this dramatic rise would have easily predictable consequences: everything other nations import that is priced in dollars (USD) costs 35% more, and everything the U.S. imports from other major trading nations costs 35% less.<\/p>\n

But some currencies don’t float freely on the global FX markets: they’re pegged to the U.S. dollar by their central governments.<\/b>\u00a0When a currency is pegged, its value is arbitrarily set by the issuing government\/central bank.<\/p>\n

For example, in the mid-1990s, the government\/central bank of Thailand pegged the Thai currency (the baht) to the USD at the rate of 25 baht to the dollar.<\/p>\n

Pegs can be adjusted up or down, depending on a variety of forces. But the main point is the market is only an indirect influence on the peg, not the direct price-discovery mechanism as it is with free-floating currencies.<\/p>\n

If central states\/banks feel their currency is becoming too strong via a vis the USD, they can adjust the peg accordingly.<\/p>\n

Why do states peg their currency to the U.S. dollar?<\/b>\u00a0There are several potential reasons, but the primary one is to piggyback on the stability of the dollar without having to convince the market independently of one’s stability.<\/p>\n

Another reason to peg one’s currency to the USD is to keep your currency weaker than the market might allow. This weakness helps make your exports to the U.S. cheap\/ competitive with other nations that have weak currencies.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

When Currency Pegs Break, Global Dominoes Fall\u00a0 When a currency peg breaks, it unleashes shock waves of uncertainty and repricing that hit the global financial system like a tsunami. The U.S. dollar has risen by more than 35% against other major trading currencies since mid-2014: If all currencies floated freely on the global foreign exchange […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[127,951,2766,2022,4924,839,3492],"class_list":["post-18187","post","type-post","status-publish","format-standard","hentry","category-economics","tag-charles-hugh-smith","tag-currency","tag-currency-peg","tag-fx","tag-oftwominds","tag-us-dollar","tag-usd"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18187","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18187"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18187\/revisions"}],"predecessor-version":[{"id":18188,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18187\/revisions\/18188"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18187"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18187"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}