crawling peg

To react to external pressure (such as interest rate differentials or changes in foreign-exchange reserves) 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.{{cite book|title= Principles of International Finance|author= Daniel R. Kane |date=1988|publisher=Croom Helm| isbn = 9780709931348 | url = https://books.google.com/books?id=nL0NAAAAQAAJ |page=116}}

Some central banks use a formula 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 speculations.

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 used a crawling peg to address inflation in the peso crisis. It transitioned from a fixed exchange rate in the 1990s without the instability of rapid devaluation.{{cite web |url=http://www.investopedia.com/terms/c/crawlingpeg.asp |work=Investopedia |title=Crawling Peg |accessdate=2016-01-13}}

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.{{Cite journal |last=Dat |first=HoangDuc |title=The fifth edition of Maurice D |url=https://www.academia.edu/9090444/The_fifth_edition_of_Maurice_D}}

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).{{cite book|author=E. Ray Canterbery|title=The Global Great Recession|url=https://books.google.com/books?id=uaeIpuCheosC|year=2011|publisher=World Scientific|isbn=978-981-4322-77-5}} 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.

According to the IMF's "Annual Report on Exchange Arrangements and Exchange Restrictions 2014",{{cite book |title=Annual Report on Exchange Arrangements and Exchange Restrictions 2014 | date= October 2014 |publisher = International Monetary Fund |location=Washington, D.C. |isbn=978-1-49830-409-2 |page=6| url = http://www.imf.org/external/pubs/nft/2014/areaers/ar2014.pdf}} only two countries—Nicaragua's córdoba and Botswana's pula—had a crawling-peg exchange rate arrangement at the time.

• China uses a floating band model, i.e., essentially a delayed peg.{{cite book |title=Annual Report on Exchange Arrangements and Exchange Restrictions 2014 | date= October 2014 |publisher = International Monetary Fund |location=Washington, D.C. |isbn=978-1-49830-409-2 |page=6| url = http://www.imf.org/external/pubs/nft/2014/areaers/ar2014.pdf}}
• The Nicaraguan córdoba has used a crawling peg since 1991.{{cite news |title=Nicaragua seeks to de-dollarize economy |first=Tim |last=Rogers |date=May 13, 2014 |work=The Nicaragua Dispatch |url=http://nicaraguadispatch.com/2014/05/nicaragua-seeks-to-de-dollarize-economy/ |access-date=January 13, 2016 |archive-url=https://web.archive.org/web/20170210091806/http://nicaraguadispatch.com/2014/05/nicaragua-seeks-to-de-dollarize-economy/ |archive-date=February 10, 2017 |url-status=dead }}
• The Botswana pula has used a crawling peg since 2005.{{Cite web |title=Current Exchange Rate Framework |url=https://www.bankofbotswana.bw/content/current-exchange-rate-framework |archive-url=https://web.archive.org/web/20231202161014/https://www.bankofbotswana.bw/content/current-exchange-rate-framework |archive-date=2 December 2023 |access-date=13 March 2024 |website=Bank of Botswana}}
• The Vietnamese đồng used a crawling peg until January 2016. Since then it has used a managed float.{{Cite web |last=U.S. Department of the Treasury |date=May 2019 |title=Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States: May 2019 |url=https://home.treasury.gov/system/files/206/2019-05-28-May-2019-FX-Report.pdf |archive-url=https://web.archive.org/web/20231102035239/https://home.treasury.gov/system/files/206/2019-05-28-May-2019-FX-Report.pdf |archive-date=2 November 2023 |access-date=13 March 2024 |website=U.S. Department of the Treasury |page=36}}{{Cite news |last=Barnes |first=Mark |date=4 November 2022 |title=Explained: Implications of the Latest Fed Rate Hike on the Vietnamese Dong |url=https://www.vietnam-briefing.com/news/federal-reserve-interest-rate-vietnam.html/ |archive-url=https://web.archive.org/web/20230401164746/https://www.vietnam-briefing.com/news/federal-reserve-interest-rate-vietnam.html/ |archive-date=1 April 2023 |access-date=13 March 2024 |work=Vietnam Briefing}}
• 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.{{Cite news|url=https://www.lanacion.com.ar/politica/la-tablita-cambiaria-la-medida-mas-recordada-de-alfredo-martinez-de-hoz-nid1563917|title=La tablita cambiaria, la medida más recordada de Alfredo Martínez de Hoz|newspaper=La Nación|date=16 March 2013}}{{Cite news|url=https://www.lanacion.com.ar/economia/inflacion-emision-cero-bandas-no-intervencion-principales-nid2175873|title=Inflación, emisión cero y bandas de no intervención: Las principales frases de Sandleris|newspaper=La Nación|date=26 September 2018}} In December of 2023, two days after the assumption of president Javier Milei, 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.{{Cite news|url=https://www.bloomberg.com/news/articles/2023-12-13/argentina-to-target-2-monthly-devaluation-of-peso?embedded-checkout=true|title=Argentina to Target 2% Monthly Devaluation of Peso|newspaper=Bloomberg|date=12 December 2023}}{{Cite news|url=https://www.reuters.com/world/americas/argentina-inflation-ticks-up-27-december-ends-2024-1178-2025-01-14/|title=Argentina slows peso crawling peg as inflation eases|newspaper=Reuters|date=14 January 2025}}
• The Bangladeshi taka has used a crawling peg to the US dollar since 8 May 2024.{{Cite news |last=Devnath |first=Arun |date=8 May 2024 |title=Bangladesh Introduces Crawling Peg for Taka as Rates Raised |url=https://financialpost.com/pmn/business-pmn/bangladesh-introduces-crawling-peg-for-taka-as-rates-raised |archive-url=https://web.archive.org/web/20240509000201/https://financialpost.com/pmn/business-pmn/bangladesh-introduces-crawling-peg-for-taka-as-rates-raised |archive-date=9 May 2024 |access-date=9 May 2024 |work=Bloomberg |via=Financial Post}}
• 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.

• Exchange-rate regime
• José Alfredo Martínez de Hoz
• Adolfo Diz

{{reflist}}

• {{cite book|title=Principles of International Finance|author=Kane, D.R.|date=1988|publisher=Croom Helm|isbn=9780709931348|url=https://books.google.com/books?id=nL0NAAAAQAAJ|page=116|accessdate=2014-10-12}}
• {{cite web|url=http://glossary.reuters.com/index.php/Crawling_Peg|title=Crawling Peg - Financial Glossary|publisher=glossary.reuters.com|accessdate=2014-10-12|archive-url=https://web.archive.org/web/20120208133721/http://glossary.reuters.com/index.php/Crawling_Peg|archive-date=2012-02-08|url-status=dead}}
• {{cite web|url=http://www.investopedia.com/terms/c/crawlingpeg.asp|title=Crawling Peg Definition | Investopedia|publisher=investopedia.com|accessdate=2014-10-12}}
• [http://www.imf.org/external/pubs/ft/ar/index.htm International Monetary Fund, Annual Report]
• [http://www.imf.org/external/pubs/ft/wp/2002/wp02155.pdf IMF, The Evolution of Exchange Rate Regimes Since 1990, see: PDF pp. 14-15]

Category:Foreign exchange market