Crawling peg is a compromise between fixed exchange rate and floating exchange rate.  Discuss.

Expert Answers
pohnpei397 eNotes educator| Certified Educator

The statement given above is an accurate one.  A crawling peg is, in fact, a compromise between a fixed exchange rate and a floating exchange rate.

In a fixed exchange rate, the exchange rate for a pair of currencies is set at a given value and does not move.  This means that it stays the same regardless of whether market forces would cause it to move if allowed to do so.  This makes for a stable, but often unrealistic, exchange rate.

A floating exchange rate is completely unregulated and is left to market forces.  This is a more realistic rate, but it is subject to wild fluctuations, especially if one of the countries is not very stable.

In between these two options is a crawling peg.  This allows the exchange rate to fluctuate, but only within a certain range.  That allows for some market influence but it prevents the sorts of wild fluctuations that would harm an economy.