Crawling peg
Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
A crawling peg is a fixed exchange rate that the government adjusts regularly in small, planned steps. It is not changed in one big jump. The rate "crawls", often in line with the gap between home inflation and partners' inflation. This keeps exports competitive without the shock of a sudden, large devaluation. On the range of exchange-rate systems, it is softer than a hard peg or a conventional peg but firmer than a managed float.
Example
Suppose a country's inflation is 6% a year and its main trading partner's is 2%. Under a crawling peg, the authorities might lower the currency's value by a small amount each month, adding up to about 4% a year. This stops the currency from becoming overvalued in real terms. The IMF has at times described India's actual exchange-rate behaviour as a "crawl-like arrangement", although India officially says the rupee floats.
Don't confuse with
- Managed floating: the market sets the rate and the central bank steps in only to smooth sharp moves. There is no pre-set path.
Related concepts
- Fixed exchange rate
- Devaluation
- Revaluation
- Black market for foreign exchange
- Speculative attack
- Managed floating
- Forex intervention
- Currency board
- Impossible trinity
- Competitive devaluation