Currency pegs can create stability but face challenges from "summary" of International Money and Finance by Michael Melvin
Currency pegs have long been used by countries seeking to stabilize their exchange rates. By fixing their currency to another currency or a basket of currencies, countries aim to create stability and certainty in their exchange rate regime. This can be particularly beneficial for small and open economies that are highly vulnerable to external shocks and fluctuations in international currency markets. While currency pegs can indeed help to create stability, they are not without their challenges. One of the main challenges is the need to maintain the peg in the face of changing economic conditions. In order to keep the peg in place, central banks often have to intervene in the foreign exchange market, buying or selling currencies to ensure that the exchange rate remains within the desired band. This can be a costly and time-consuming process, and can put a strain on the cou...
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