macroeconomics Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...

, crawling peg is an

exchange rate regime An exchange rate regime is a way a monetary authority of a country or currency union manages the currency about other currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many ...

that allows currency depreciation or appreciation to happen gradually. It is usually seen as a part of a

fixed exchange rate A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a currency basket, basket of other currenc ...

regime. The system is a method to fully use the key attributes of the fixed exchange regimes, as well as the

flexibility Stiffness is the extent to which an object resists deformation in response to an applied force. The complementary concept is flexibility or pliability: the more flexible an object is, the less stiff it is. Calculations The stiffness, k, of a ...

of the

floating exchange rate In macroeconomics and economic policy, a floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of exchange rate regime in which a currency's value is allowed to fluctuate in response to foreign exchange market ...

regime. The system is shaped to peg at a certain value, but at the same time is designed to "glide" to respond to external market uncertainties.

Changing rates

External pressure

To react to external pressure (such as interest rate differentials or changes in

foreign-exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold and silver held by a central bank or other monetary authority that are primarily available to balance payments of the country, ...

) to appreciate or depreciate the exchange rate, the system can have moderately-sized, frequent exchange rate changes to ensure that the economic dislocation is minimized.

Rate formulae

Some

central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

s use a

formula In science, a formula is a concise way of expressing information symbolically, as in a mathematical formula or a ''chemical formula''. The informal use of the term ''formula'' in science refers to the general construct of a relationship betwe ...

that triggers a change when certain conditions are met, while others prefer not to use a preset formula and frequently change the exchange rate to discourage

speculation In finance, speculation is the purchase of an asset (a commodity, good (economics), goods, or real estate) with the hope that it will become more valuable in a brief amount of time. It can also refer to short sales in which the speculator hope ...

Advantages and disadvantages

The main advantages of a crawling peg are that it avoids economic instability as a result of infrequent and discrete adjustments (fixed exchange rate), and it minimizes the rate of uncertainty and volatility since the fluctuation in the exchange rate is kept minimal (floating exchange regime). For example,

Mexico Mexico, officially the United Mexican States, is a country in North America. It is the northernmost country in Latin America, and borders the United States to the north, and Guatemala and Belize to the southeast; while having maritime boundar ...

used a crawling peg to address

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

in the peso crisis. It transitioned from a fixed exchange rate in the 1990s without the instability of rapid devaluation. In practice, the system may not be an "ideal system" under certain scenarios. For instance, if there are substantial currency flows that may affect the exchange rate, monetary authorities may be "forced" to accelerate currency realignment, leading to substantial unsystematic costs to market players. In practice, only a few countries have adopted crawling pegs.

Delayed peg

E. Ray Canterbery proposes an idea of a delayed peg to eliminate many disadvantages of the crawling peg model. The delayed peg uses a wideband for exchange-rate fluctuations, while the band is allowed to move when foreign exchange liabilities accumulate (at a secret but predetermined rate). In China, a new use of a "floating band" is essentially a delayed peg.Gang Yi, The People's Bank of China, "Exchange Rate Arrangement: Flexible and Fixed Exchange Rate Debate Revisited, IMF, April 16–17, 2013, pp. 5-6.

Currencies using a crawling peg

According to the IMF's "Annual Report on Exchange Arrangements and Exchange Restrictions 2014", only two countries—

Nicaragua Nicaragua, officially the Republic of Nicaragua, is the geographically largest Sovereign state, country in Central America, comprising . With a population of 7,142,529 as of 2024, it is the third-most populous country in Central America aft ...

's córdoba and

Botswana Botswana, officially the Republic of Botswana, is a landlocked country in Southern Africa. Botswana is topographically flat, with approximately 70 percent of its territory part of the Kalahari Desert. It is bordered by South Africa to the sou ...

pula Pula, also known as Pola, is the largest city in Istria County, west Croatia, and the List of cities and towns in Croatia, seventh-largest city in the country, situated at the southern tip of the Istria, Istrian peninsula in western Croatia, wi ...

—had a crawling-peg exchange rate arrangement at the time. * China uses a floating band model, i.e., essentially a delayed peg. * The

Nicaraguan córdoba The córdoba (, currency sign, sign: C$; ISO 4217, code: NIO) is the currency of Nicaragua and is divided into 100 ''centavos''. History The first córdoba was introduced with the new National Bank of Nicaragua (Banco Nacional de Nicaragua In ...

has used a crawling peg since 1991. * The

Botswana pula The Pula (also known as the Botswana dollar) is the currency of Botswana. It has the ISO 4217 code ''BWP'' and is subdivided into 100 ''thebe''. ''Pula'' literally means "rain" in Setswana, because rain is very scarce in Botswana—home to much o ...

has used a crawling peg since 2005. * The

Vietnamese đồng The dong (; ; ; sign: ₫ or informally đ and sometimes Đ in Vietnamese; code: VND) is the currency of Vietnam, in use since 3 May 1978. It is issued by the State Bank of Vietnam. The dong was also the currency of the predecessor states of ...

used a crawling peg until January 2016. Since then it has used a managed float. * The Argentine peso used, then abandoned, a crawling peg model between 1978 and 1981 named ''La Tablita''. Also, a floating band model, which is essentially a delayed peg, was adopted between 2018 and 2019. In December of 2023, two days after the assumption of president

Javier Milei Javier Gerardo Milei (born 22 October 1970) is an Argentine politician and economist who has served as President of Argentina since 2023. Milei also served as a national deputy representing the City of Buenos Aires for the party La Libertad ...

, a crawling peg model was implemented to devalue the Argentine peso at a fixed monthly rate of 2%—a rate that will be brought down to 1% in February of 2025 after inflation goals were achieved. * The

Bangladeshi taka The taka (, , currency sign, sign: , ISO 4217, code: BDT, Short form (linguistics), short form: Tk) is the currency of Bangladesh. In Unicode, it is encoded at . Issuance of banknotes 10 and larger is controlled by Bangladesh Bank, while the ...

has used a crawling peg to the US dollar since 8 May 2024. * The Ecuadorian sucre had a crawling peg model until it was replaced with USD in March 2000. * The Uruguayan peso was on a crawling peg model (''tablita'') from 1973 until a banking crisis in 2002. * The Costa Rican colón was on a crawling peg model until October 17, 2006.

References

External links

* * *{{cite web, url=http://www.investopedia.com/terms/c/crawlingpeg.asp, title=Crawling Peg Definition | Investopedia, publisher=investopedia.com, accessdate=2014-10-12
International Monetary Fund, Annual Report

IMF, The Evolution of Exchange Rate Regimes Since 1990, see: PDF pp. 14-15
Foreign exchange market