Definition of Currency Peg

What does the term "currency peg" mean? What is meant by the term "currency peg"?

A "currency peg" occurs when a country decides to fix their rate of exchange to another country's currency.

A country may "peg" their currency to something like the US Dollar, the Euro or even gold.

For instance, China has an informal peg to the US dollar. In June of 2010, the People's Bank of China had an exchange rate of 6.8275 yuan to the US Dollar.

Countries will usually peg their currency in order to maintain some sort of stability for their importers and exporters.

Many people have declared that China is a "currency manipulator" due to the fact that they have kept their currency "artificially low" over the years in order to have cheap exports. The United States has been poking and prodding China for years to drop their informal peg policy.

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