Linked Exchange Rate System

A linked exchange rate system is when a country decides to link, or peg, it’s currency to another currency. A linked exchange rate system means that the exchange rate between the linked currencies will remain constant. It also means that the goods traded should always be a constant value.

The linked exchange rate system means more stability and low inflation...that is, if the peg-er country chose a peg-ee country...wisely.

When the peg-ee country’s currency rises, so does the peg-er’s currency, and vice versa. The Hong Kong dollar, which is linked to the U.S. dollar, has been rising and falling with the U.S. dollar for over three decades...and to great effect. While there are many other factors that have contributed to Hong Kong’s economy, it’s probable that linking the Hong Kong dollar to the U.S. Dollar has helped them grow into the financial megacenter that it is today (for now, at least).