A pegged currency is a type of currency whose value is associated with a real-world asset at all times. The meaning of pegged currency signifies a “stablecoin” whose value is designed to remain under the designated fiat currency.
Understanding the term
The process of currency pegging has existed for years in various countries where they ‘peg’ (or attach) the exchange rate of any currency to a different currency or currencies. A pegged currency allows you to fix the exchange rate of a currency. It is sometimes referred to as a fixed exchange rate. The value of a stablecoin is always attached to an outside fiat asset, most commonly the US dollar or even gold value, in an attempt to stabilize the prices.
To define pegged currency use cases, it’s important to remember that it minimizes the price fluctuations, volatility, and unpredictability common in standard currencies. All cryptos exhibit unpredictability, which makes them hard to use and trade. Their tendency to fluctuate beyond expectations makes investors wary of dabbling with crypto and prefer stablecoins that offer stability in prices.
The pros of using pegged currencies include protection against market fluctuations and price predictability when economies become unstable.