I’m currently in Belize, where the local currency (the Belize Dollar) is “pegged” to the US dollar, with 1 Belize Dollar always being worth $0.50 USD. I also heard that the Guatemalan Quetzal was pegged to the dollar in the 20th century, but isn’t any more.
How does this work? Does this mean that Belize Dollars are functionally US dollars in the global economy? And there must be implications for how much money a pegged country could print without losing its value…I could use an overview!
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I’m sure you have the basics now. But if a country runs out of US dollars (maybe because they run a trade deficit so more dollars leave then enter) then they can no longer support the currency and a economic crash will happen.
Also if the peg is not “fair” then a black market will emerge for the currency. So 100 USD will get you 500 on the streets rather then the 200 from the central bank. This is bad for the bank because it means they don’t get the likely much needed USD they can use to prop up the currency and because who wants a black market to emerge anyways. So if inflation runs rampant and they don’t adjust the peg then that will happen and it’s basically one of the problems in Lebanon.
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