When a country fixes its currency's value to another currency, usually the dollar, instead of letting it float freely.
Most major currencies float, meaning their value shifts constantly based on trading in the open market. A currency peg is a country deliberately fixing its currency's value to another one, usually the US dollar, and committing to buy or sell its own currency to keep that rate stable. Pegs can bring stability and make trade easier to plan, but they're expensive to defend: if investors start betting a peg can't hold, a central bank can burn through its foreign currency reserves trying to defend it, and a peg that eventually breaks tends to break suddenly and violently.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.