The crawling peg is a change in currency which is implemented and facilitated much like the process in the fixed exchange rate in which the government of a country or the central bank has a significant role to play. The point of difference between the crawling peg and the system of fixed exchange rate is that the target value undergoes a significant change. In the crawling peg the target can undergo a change at intervals which can be random which indicates a change without warning or a periodic change that occurs at an hourly, daily, weekly, monthly or yearly basis.
Developing countries often use this method to curb inflation or keep in control. China has also adopted the crawling peg. The basic idea of the crawling peg is to control any rapid changes in the rate of exchange which could occur in the future and lead to significant loses for a country’s economy. The crawling peg stops the exchange rate from shifting too rapidly or move farther from the equilibrium which has the potential to harm the economy severely. Hence the defect of the fixed exchange rate is controlled by the crawling peg.
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