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!
In: 9007
It works similar to old gold or silver standards, the central bank promises to pay you in dollars for their notes in the same way that currencies would get you a certain amount of gold when they were on the gold standard. It means that a smaller country like Belize is less vunerable to market forces, they ‘borrow’ stability from the US, but it also means they can’t act so easily to deflate or inflate their currency as suits their economy. They need to have a considerable fund of US dollars for it to work but not actually 1 for every 2 Belize dollars
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