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 means that the value of the Belize dollar is effectively set to be $0.50 of the dollar. Belize has a reserve of US dollars that represents $0.50 of the Belize dollars in the world. For example if Belize wants to add(print) 1 Belize dollar it needs to buy an additional $0.50 in USD to match. It works much like the gold reserve system used to in the US.
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