eli5 How does a country become eligible to peg their currency to USD?
In: 8
Functionally to be really pegged 1:1 the country would need to have an equal amount of dollars in their ‘account’. In reality this concept is applied fractionally like 1 dollar equals X local currency. And developing countries usually keep a large reserve of US dollars for this exact reason. Having a lot dollars make your own currency valuable it’s like gold because you know there’s always a demand for dollars
Context I worked in currency derivative desks and also this concept is complicated so this is dumbed down
Latest Answers