Key Global Currencies Pegged to the U.S. Dollar

Currency exchange rates play a crucial role in a nation’s economy. The exchange rate refers to the value of one currency compared to another.

Some currencies are free-floating, meaning their value fluctuates according to supply and demand in the market. Others are fixed, meaning their value is tied to another currency.

In this article, we explore exchange rates that are fixed to the U.S. dollar and discuss some of the benefits of adopting this strategy.

What Is Currency Pegging?

When countries engage in international trade, they often seek to maintain stability in their currency’s value. Pegging is a method that allows countries to achieve this. When a currency is pegged, it is linked or fixed to another country’s currency.

Countries choose to peg their currencies to protect the competitiveness of their exports. A weaker currency makes goods and services more affordable for foreign buyers, boosting exports and attracting tourists.

Excessive fluctuations in exchange rates can harm international trade. To avoid this, many countries opt for fixed exchange rate policies, and today, a significant number of currencies remain pegged to the U.S. dollar.

The Bretton Woods Agreement

The U.S. dollar, also known as the greenback, was tied to gold under the Bretton Woods Agreement, as the U.S. held a large portion of the world’s gold reserves. This system helped reduce volatility in international trade, as many currencies were pegged to the dollar. The agreement came to an end in the early 1970s when President Richard Nixon took the U.S. off the gold standard.

Following the collapse of the Bretton Woods system, countries gained the flexibility to choose how to manage their currencies in the global market. They could peg to another currency, use a basket of currencies, or allow market forces to determine their currency’s value.

Fixed vs. Floating Exchange Rates

Currently, there are two main types of currency exchange rates: floating and fixed. Major currencies like the U.S. dollar, Japanese yen, and euro are floating currencies, meaning their values fluctuate according to how they are traded on foreign exchange (forex) markets.

Floating exchange rates are driven by supply and demand. A currency’s value reflects its country’s economic strength, with short-term changes potentially signaling weakness.

On the other hand, fixed currencies derive their value by being tied to another currency. Many developing or emerging economies use fixed exchange rates to provide more stability for importers and exporters, and to help keep interest rates low.

Why Do Countries Peg to the U.S. Dollar?

Countries have various reasons for pegging their currencies to the U.S. dollar. For example, many Caribbean nations—including Aruba, the Bahamas, Barbados, and Bermuda—peg their currencies to the dollar because tourism, which is largely paid in U.S. dollars, is a major source of income. Pegging to the U.S. dollar helps stabilize their economies and reduce volatility.

In Africa, most countries peg their currencies to the euro, though Djibouti and Eritrea are exceptions, pegging to the U.S. dollar. In the Middle East, oil-producing nations like Saudi Arabia, Qatar, Oman, Jordan, and the UAE peg to the U.S. dollar due to the United States being a key trading partner for oil.

In Asia, both Macau and Hong Kong peg their currencies to the U.S. dollar (Macau does so via the Hong Kong dollar). China, however, has faced criticism for its currency management policies. While China does not officially peg the yuan to the U.S. dollar, it does manage the exchange rate to support its export-driven economy.

Major Fixed Currencies

Below is a list of national economies and their exchange rates pegged to the U.S. dollar as of 2023: