eli5 How does a country become eligible to peg their currency to USD?

Question

eli5 How does a country become eligible to peg their currency to USD?

In: 8

Answer 1

You don’t need to be eligible, any country is allowed to peg to any currency. To make a pegged currency you need a large amount of reserves of the currency you are pegging to because the currency price is still determined by the free market. To keep a currency pegged at a certain price the central bank needs to sell more of its currency if the price is too high and buy back its currency with the foreign reserves to raise the price.