Pegging of currency is the technique to reduce the fluctuations in currency market. With pegging of currency, central bank fixes its currency rate for other country's currency rate. Following is the reason of pegging of currency.
Every country's currency rate is fixed on the basis of demand and supply of that country's currency. For example, today is 1 $ is equal to Rs. 49.70. It is fully dependent on the demand and supply of USA Dollar and Indian Rupee. But if there is fluctuations in currency market, then it will effect to export and import between USA and India. So, for making stable, Govt. and central banks take steps for pegging.
In pegging of currency, RBI will try to decrease his own currency's value for USA dollars. Why? Because if Indian Rupees will strong, exporters will get loss or will decrease its market in USA. For reducing its loss. RBI will publish new notes equal to the shortage of Indian currency. Due to more supply, again India currency's power will decrease and it will always between Rs. 48 to Rs. 50.
Like this, we can take the example of China. If china wants to keep its yuan upto 1$ : 6 Yuan, it will also issue new Yuan currency for reducing the bad effect on the exports of China.
{ As per my personal thought, all these exporters should see own country's interest http://www.svtuition.org/2010/02/interest.htmlfirst, if any country's currency will strong, we can reduce our human capital, who are leaving our own country just for getting high foreign currency. Govt. should try to increase own country's currency }
Every country's currency rate is fixed on the basis of demand and supply of that country's currency. For example, today is 1 $ is equal to Rs. 49.70. It is fully dependent on the demand and supply of USA Dollar and Indian Rupee. But if there is fluctuations in currency market, then it will effect to export and import between USA and India. So, for making stable, Govt. and central banks take steps for pegging.
In pegging of currency, RBI will try to decrease his own currency's value for USA dollars. Why? Because if Indian Rupees will strong, exporters will get loss or will decrease its market in USA. For reducing its loss. RBI will publish new notes equal to the shortage of Indian currency. Due to more supply, again India currency's power will decrease and it will always between Rs. 48 to Rs. 50.
Like this, we can take the example of China. If china wants to keep its yuan upto 1$ : 6 Yuan, it will also issue new Yuan currency for reducing the bad effect on the exports of China.
{ As per my personal thought, all these exporters should see own country's interest http://www.svtuition.org/2010/02/interest.htmlfirst, if any country's currency will strong, we can reduce our human capital, who are leaving our own country just for getting high foreign currency. Govt. should try to increase own country's currency }
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