Episode Details
Back to Episodes
How Central Banks Use Exchange Rate Pegs as Policy Tools
Description
Episode 61 of Monetary Policy Explained with Fexingo dives into the mechanics and trade-offs of exchange rate pegs. Lucas and Luna break down how the Hong Kong Monetary Authority has maintained a peg to the US dollar since 1983, why it requires holding over $400 billion in foreign reserves, and what happens when a peg comes under pressure—using the 1997 Asian Financial Crisis and the 2022 Turkish lira collapse as contrasting examples. They explore the policy trilemma: no central bank can have independent monetary policy, free capital flows, and a fixed exchange rate all at once. This episode explains why pegs are a deliberate sacrifice of interest-rate autonomy, and when that trade-off might be worth it. Perfect for anyone curious about how small economies tether their currencies to giants—and what happens when the tether snaps.