When a country ‘peg’ its currency to another currency that is greater in value, such as the US dollar, this will impact on the operators of monetary policy in other countries. This gives 2 advantages, the first impose discipline to the other party or impose monetary regimes that is hard. Second, let a person is depressed against the controversial policies such as QE.
But of course, there’s the bad side of letting other people set the important things. And in this case, when other countries mess up the monetary policy itself, the ‘stake’ can be a additional disaster. An example for this case is China, with the Yuan-its paired with the US Dollar. As illustrated by the chart below, the relationship is quite stable on the previous year.
But during the year, the Dollar soaring against other countries. Thus the Yuan is also soaring high. If compared with the Euro then as shown in the chart below.
And because Chinese exports in Yuan currency, then the price of the goods their exports become more expensive by about 20% in the previous year. This case, based on basic economics and general knowledge, will impact on the lack of the power to sell China to the foreigners and finally China’s economy slowed.