Adjustable Peg

While not an adjustable prosthetic leg, it functions similarly. An adjustable peg is a currency exchange rate policy in which a central bank keeps the nation's currency pegged, or fixed, to another currency. Nations that do this peg to either the USD or the Euro. The UAE pegs its currency to the USD at a rate of 3.67 AED (the dirham) to each USD. If the USD appreciates against another currency, so will the AED, and vice versa.

What happens if market conditions whack out the AED and it starts to fall out of its peg? The central bank will intervene and buy and sell foreign currencies until all is well again.

Countries will peg their currencies when they are seeking economic stability. Still others, like China, will peg their currency below another currency to gain an advantage in selling their exports. The US has accused the Chinese of keeping their currency artificially low as compared to the USD so that we consumer-driven Americans will buy up all those cheap Chinese goods. The Chinese are happy because their GDP increases at the expense of Americans, and they have a current account surplus, so they can buy up all the US apartment complexes and office buildings as investments. But this makes the US angry, since it takes jobs away, lowers the US GDP, and the current account deficit continues. Maybe the life of a peg-legged pirate is easier to understand.