Do they need to back this up by having American currency on hand ? - otherwise, what's to prevent all countries from pegging their currencies to the strongest one out there ?
2007-11-28 16:32:44 · 2 answers · asked by Anonymous in Social Science ➔ Economics
They intervene in the currency market buying their currency when it is below the peg and selling it when it is above. To buy they need dollars (or euros pounds etc) and if they try to keep the peg too high they will run out of dollars, and the peg too low they will accumulate dollars as China has.
2007-11-28 18:48:38 · answer #1 · answered by meg 7 · 1⤊ 0⤋
They do exactly what you think they do, they copy the dollar's trading price. For example, if the dollar drops 2% today, their currency also drops 2%. No, they don't need the curreny, but they often keep some dollars on hand just in case they want to buy back their own money. Prevent? What makes you think every country will peg their currency to our dollar? But to answer your question, no every country in the world would not be permitted to peg their currency to the dollar. The IMF and the World Bank could step in and do something.
2007-11-28 16:47:32 · answer #2 · answered by ChocolateCoveredGoodness 5 · 1⤊ 0⤋