There are pros and cons to a pegged exchange rate.

Scan device characteristics for identification.Use precise data.It is possible to store and/or access information on a device.You can choose personalised content.A personalized content profile can be created.Measure ad performance.Basic ads should be selected.A personalized ads profile can be created.Choose personalized ads.Market research can be used to generate audience insights.Content performance can be measured.Improve products.There is a list of partners.

China's government decided in June 2010 to end its currency peg to the U.S. dollar.The announcement was praised by global economic leaders.

China's economic boom over the last decade has changed the country and the world.In order to handle certain aspects of the economy effectively, a change in the monetary policy was required.The country's growth rates could not have been established without a fixed dollar exchange rate.

Chinese currency pegging is the most obvious example, but they are not the only one that has used this strategy.Despite some potential drawbacks, large and small economies prefer this type of exchange rate.

A fixed exchange rate regime is preferred by countries.A country can keep its exchange rate low by controlling its domestic currency.As its goods are sold abroad, this helps to support its competitiveness.Let's assume a euro/Vietnamese dong exchange rate.A T-shirt costs five times more to make in a European Union country than it does in Vietnam, because of the euro's strength.

Thailand and Vietnam are examples of countries with low costs of production that have strong trade relationships with the United States and the European Union.The amount of profit that is made through the exchange rate is greater when Chinese and Vietnamese manufacturers translate their earnings back to their countries.Keeping the exchange rate low ensures a domestic product's profitability at home.Check out "Currency Exchange: Floating Versus Fixed" for more.

The fixed exchange rate dynamic adds to a company's earnings outlook and supports a rising standard of living.That's not the only thing.The idea of a fixed, or pegged, exchange rate is being looked at by governments as a way to protect their domestic economies.Foreign exchange swings can affect the growth outlook of an economy.Government can reduce the likelihood of a currency crisis by shielding the domestic currency from swings.

During the global financial crisis of 2008, China decided to return to a fixed exchange rate regime.The Chinese economy emerged relatively unscathed after the decision was made.Other global industrialized economies that didn't have such a policy turned lower before recovering.

Governments pay a price when they implement the pegged-currency policy in their countries.The need to maintain the fixed exchange rate is a common element of fixed or pegged foreign exchange regimes.Large amounts of reserves are required as the country's government or central bank buys and sells domestic currency.

China is a great example.In order to maintain the U.S. dollar peg rate, Chinese foreign exchange reserves grew each year.It took China a couple of years to surpass Japan's foreign exchange reserves.Beijing's reserves were more than double that of Japan at the time.

Huge currency reserves can create unwanted economic side effects that can lead to higher inflation.The bigger the monetary supply, the higher the prices are.It can be hard for countries to keep things stable when prices go up.

Many fixed exchange rate regimes have failed because of these economic elements.These economies are exposed domestically because they are able to defend themselves.Indecision about adjusting the peg for an economy's currency can be coupled with the inability to defend the underlying fixed rate.One such currency was the Thai baht.

The baht used to be pegged to the U.S. dollar.The Thai baht came under attack after adverse capital market events.The government's inability to defend the baht peg using limited reserves caused the currency to plummet.

The Thai government was forced into floating the currency in 1997.Between July 1997 and October 1997 the baht fell by as much as 40%.