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Benefits Of Pegging

Benefits of Pegging

Currency pegging has become popular and is used to match a currency’s worth or value against another currency. In most countries, there is a fixed currency exchange rate, which not only simplifies currency conversion but also support the strength of the currency peg. Most often, currency pegging is done on top gainers like the euro or the U.S dollar. The exchange rate is only applicable when the recipient can receive his/ her money minus the transfer fees.

1. Fosters stability
While there are different types of pegs with respect to currency exchange, the client will only incur money transfer charges. As mentioned earlier, pegged currency typically uses a stable currency to which other currencies are pegged. Furthermore, some countries have adopted foreign currency as their local currency due to a number of reasons.

2. Better market value
Some of the countries that have adopted the U.S dollar as their national currency include El Salvador, Ecuador, and Panama. However, there are many other countries that have decided to peg their national currency. Some common example of these currencies includes the Chinese Yuan, the Dirham and the Lebanese lira among others. On the other hand, some of countries that use the Euro as their national currency include Bosnia, Bulgaria, Morocco, Latvia, Lithuania, Estonia and Herzegovina.

3. Easy conversion
For a recipient or a sender, pegging currency means there is no need of conversion as long as the pegged currency is the national currency of the recipient. For example, if you want to send your money in euro to a friend in Latvia, he/ she will get the full amount but will be converted to his/ her national currency without affecting the exchange rates. Nonetheless, you must incur bank fees to transfer the money.

4. Investment opportunities
Currency may offer an excellent investment opportunity provided that you play it safe. Since governments usually borrow loans from other countries in form of foreign currencies, they have to ensure those currencies remain stable.
While there are numerous benefits of pegging currency, you should bear in mind that fluctuation is inevitable due to world trends.

Benefits Of Pegging

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