MBA (General)IV – Semester, International Business Unit 1
Definition of Crawling Peg and Target-Zone Arrangement
In a target-zone arrangement, the intra-zone exchange rates are fixed. An opposite example of such an arrangement is the European Monetary Union (EMU) which was earlier known as the European Monetary System (EMS).
Crawling
Peg
Again, a few countries
have a system of crawling
peg. Under this system, they allow the peg to change gradually over time to
catch up with the changes in the market-determined rates. It is
a hybrid of fixed-rate and flexible-rate systems. So this system avoids too
much of instability and too much of
rigidity. Elwards (1983) confirms this advantage in case of a sample of some developing countries. In some of the countries opting for
the crawling peg, crawling
bands are maintained
within which the value of currency is maintained.
Target-Zone Arrangement
In a target-zone
arrangement, the intra-zone exchange rates are fixed. An opposite example of such an arrangement is the
European Monetary Union (EMU) which was earlier known
as the European Monetary System
(EMS).
There are cases
where the member countries of a currency union do not have their own currency; rather they have a common
currency. Under this group, come the member countries
of Eastern Caribbean Currency Union, Western African Economic and Monetary Union and Central
African Economic and Monetary Community. The member countries
of European Monetary Union too will come under this group if Euro
substitutes their currency by the year, 2002.
