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Word of the Day: Currency Peg

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Watch more Capital Account @ http://www.youtube.com/CapitalAccount http://twitter.com/laurenlyster http://twitter.com/coveringdelta A currency peg, otherwise referred to as a fixed exchange rate, is a type of exchange system wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold. The most readily well-known "currency manipulator" is China, which pegs the yuan to the us dollar. Their's is a flexible peg, but a peg nonetheless, and we look at this during our word of the day, as well as the case of Argentina. These are two very different types of currency pegs. In the case of the yuan, China artificially undervalues their currency relative to the dollar, in an effort to cheapen their exports and drive growth with sales to the US and other countries. This is an export led growth model, facilitated by a cheap currency. The people's bank of china achieves this buy regularly going out into the open market and buying us dollars in return of chinese yuan. This helps to push down the value of the yuan relative to the dollar, cheapening the chinese currency, but also causing inflation domestically because china has to print all this extra money in order to soak up the USD it buys. When a country like china loosens it's peg, its currency will naturally rise. In the case of Argentina, the central bank in that country was keeping its currency artificially high relative to the USD. When Argentina headed into depression during the early 2000's it became increasingly difficult for the country to maintain the peg, because in the case of countries that are artificially increasing the value of their currency, the national central bank had to intervene in the market by selling foreign exchange reserve in return for pesos. This had its limits, since the Argentinian central bank only had so many reserves to sell. The advantage of having a strong and stable currency, as was the case in Argentina throughout the 90's is that it attracts a lot of foreign capital. However, when times get tough, a lot of that capital can leave and then you can find yourself bankrupt very quickly.
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Text Comments (10)
John Doe (6 years ago)
What a non sense! How would a "high currency" attract investment?? How did it attract investment for Argentina?? In fact it scares off investment, as production costs are too high. It is nice to see how she trys to make sense of something she really does not understand. She probably thought there must be something good over an overvalued currency, well, lets assume its good for capital inflow. But babe, it is not !
Hasiburrahman Abir (28 days ago)
She is right.
LordLindsey12 (7 years ago)
Who REALLY runs our world? search "israel Did 911" and search "ZionCrimeFactory" for proof. "US Rep. McKinney has accused the pro-Israel Lobby in America (AIPAC, ADL, etc) for ruining her political career.She refused to sign the pro-Israel pledge from Congress and took a pro-Palestinian stance. Because of this, she said “war was declared” on her by them. In 2009 she told TIU's Ognir that “more than 99% of Congress work for Zionist-Israeli interests.” w(dot)zioncrimefactory com/jew-world-order
MrZauruz (7 years ago)
Pay attention...
Meta Patriot (7 years ago)
word for tonight :Trouser Peg
loulou (7 years ago)
argentina has been having trouble cuz of globalists....which did not succeed ....
Emotional Contagion (7 years ago)
@SunnyLovetts cos I'm a mainstream republican shill! /rhetorical
BoredNotanymore (7 years ago)
floundericiousWA (7 years ago)
ar-ti-fish-YUA-ly is not a word, Lauren!
Emotional Contagion (7 years ago)
@RTAmerica Jesus Christ Lauren!? WTF you wearin gurl!? Did ya record this in Ireland!? Perpetual rain, a deliberate need to wear clothes to cover you from cold & and the mud that may spray on you!? Kurwa.... :|

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