Currency Peg

A currency peg is a monetary policy arrangement in which a country fixes its exchange rate to the currency of another country — typically the US dollar — or to a basket of currencies, at a predetermined rate. The central bank commits to buying or selling its own currency in the forex market at the fixed rate to maintain the peg, using its foreign exchange reserves as the intervention tool. Currency pegs provide exchange rate certainty for trade and investment but require the central bank to maintain sufficient reserves and surrender independent monetary policy flexibility. Notable examples include the Hong Kong dollar's peg to the USD and Saudi Arabia's riyal peg. India does not operate a fixed peg — the RBI manages a managed float regime where the rupee's exchange rate is primarily market-determined, but the RBI intervenes periodically to reduce excessive volatility. For Indian investors and exporters, understanding currency peg regimes in India's major trading partner countries — such as the UAE dirham pegged to USD — helps anticipate currency-related trade and investment impacts.