Dictionary of Banking Terms: peg (pegging)
peg (pegging)
- in foreign exchange, the process by which a government ties the value of its own currency to the currency of another country, usually the currency of its strongest trading partner, or a basket of currencies. For example, the exchange rate of the Mexican peso was pegged for many years to the U.S. dollar. An adjustable peg allows periodic adjustments in exchange rates, to adjust for currency fluctuations; a crawling peg adjusts the pegged currency rate on a more frequent basis, even daily. See also floating exchange rate; managed currency.
- manipulation to maintain the value of a security or commodity, whereby the price is not permitted to fluctuate above or below a certain preset value, known as the par value. Pegging or otherwise fixing the prices of securities traded on national exchanges is unlawful under Section 9 of the Securities Exchange Act of 1934. In commodities trading, however, exchanges may legally restrict daily price fluctuations by setting daily trading limits, pegged to the previous day's settlement price or close.
