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
The country will have a lot of dollars in reserve. The gov’t says “our currency is worth xxxx dollars.” Anytime people want to buy dollars and they have local currency, the country will sell them the dollars. Anytime people want to buy their currency in dollars they will print/tax the local currency and sell their currency and buy the dollars. As long as the buying and selling of local currency and dollars don’t get too unbalanced, the dollar/local currency rate will be stable.
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