Crawling Peg

As a crawling peg (even crawl, called sliding parities ) refers to an exchange rate system, in which the exchange rates change significantly not at once, but several times in smaller increments. A pre determined and announced exchange rate change rate must not be exceeded with respect to a foreign currency or a foreign currency basket or linked to selected macroeconomic indicators within a year.

Definitions

In the literature, the definitions of the crawling peg of different authors in different fields very far apart:

• Heine / Herr: "With a crawling peg, the central bank of a country are known, with the percentage of the exchange rate devalued weekly, monthly etc.. [ ... ] Only the central bank that follows a crawling peg, (must ) ensure compliance with the desired exchange rates. "

Generally is not only a devaluation of its currency in the foreground, in theory, also be an appreciation, even if this case hardly occurs.

These two authors refer (eg inflation) to be considered in the sliding parity adjustment only to the prescribed percentage and not on the possibility of the development of economic variables.

• Dieck Heuer: " A country changed the par value of its currency or moves the band in which the exchange rate of its currency may be located, with a certain regularity. Here, the exchange rate (or the mean rate in the case of the band fixation) either changed with firm, previously announced rates or adapted to the development of fixed -economic indicators (eg on the development of relative prices ). "

Dieck Heuer emphasizes in his definition that the exchange rate oriented not only on the announced rates, but also the possibility to bind to the development of a particular indicator. Exactly the authors left Heine and Mr. disregarded.

Furthermore, this definition makes it clear that it is the variant of the crawling band around a sort of crawling peg is and is subordinate to this. Many other authors are of the same opinion (for example, among other countries, Hungary, Brazil and Poland include the crawling peg system in almost all sources, but actually they used a crawling band system ), others take the other hand, a distinction before.

• International Monetary Fund: The currency adjustment will be made on a regular basis vis -à-vis a single currency and a basket in small amounts at a fixed rate or in response to changes in selective quantitative indicators (past inflation differentials with major trading partners, differences between the predicted and planned inflation with major trading partners, differences between the official and the corresponding market prices, etc.).

Compared to define, among other things Dieck wages of the IMF strictly separates the crawling band from the crawling peg and not associate as many other authors under the crawling peg. The crawling peg here represents a point target and not a bandwidth in which the parity adjustment may be located.

Term classification

When crawling peg is an exchange rate system (including exchange rate regime ), the (also intermediate regime ) is not assigned to either the variable or can be allocated to the fixed exchange rate system, but in the literature of the interim solution. In the further division of these interim solutions, the views of the authors go different ways.

The present approach is based on the official classification of the International Monetary Fund. The official exchange rate regime classification from 1975 to 1998, when there were three main categories was replaced in January 1999 by a new classification scheme based on de facto policy and is structured in more detail.

The so-called " De Facto Classification of Exchange Rate Regime" consists of a total of thirteen different exchange rate regimes that are attributed to three main groups ( "Hard Pegs regime " (3 ) "Floating regime " (2) and "intermediate regime " (8)).

Source: IMF

Basically, there are two variants of the crawling peg:

• Active ( predictive ) Crawl: fixed depreciation rate < expected inflation differential (difference between target inflation rate and the foreign rate of inflation). It follows the real appreciation of the domestic currency
• Passive ( retrospective ) Crawl: fixed depreciation rate = expected inflation differential; the real exchange rate remains constant

Historical Outline

One is often in the literature of the opinion that Sir Henry Roy Forbes Harrod in his book " International Economics" the first time I paraphrased the crawling peg system in 1939. In fact, his friend John Maynard Keynes had already taken up the idea of crawling peg in its recommendation for the Genoa conference in 1922.

According to a study by the IMF there in recent years fewer and fewer countries that choose the exchange rate system the crawling peg. The share of the crawling peg exchange rate of the entire intermediate regime was in 1990 at 13.6 % and 1993 even at 15%, in 2001 it was only 5.6%. The trend continues, and in 2007 chose the crawling peg only six countries. But esp. the crawling -band system, which is mostly attributed to the crawling peg is hardly taken by the countries to complete.

Source: IMF Annual Report 1999-2007

Countries with crawling peg

General

Countries that have opted for a crawling peg system, try the short-term benefits of an exchange rate fixing and the exchange rate flexibility to combine. This exchange rate system prefer especially hyperinflation fixation, because there is the possibility of an optimal inflation, eg by seigniorage revenue (the state will bring more money into circulation, thus can take more goods and services to provide complete and achieves a seignorage profit ), so as to ensure the international competitiveness of the country. Furthermore, brings a partial exchange rate fixing eg to a reserve currency much confidence and credibility in other countries, due to the rapid degradation of high inflation, contrary.

Hungary

In March 1995, the Adjustable- peg system in Hungary was removed from the crawling peg system and the monthly depreciation rate of 1.9 per cent 1 v.H. reduced. The aim of the central bank policy was to fight inflation, because the monthly depreciation rates have been below the rate of inflation set (active crawl). After further monetary, fiscal and income policies, the forint could stabilize in the summer of 1995, and its capital imports increased rapidly.

Hungary is one of the safe candidates who join the euro zone in the future. An EMU candidate must be under contract at least two years in an exchange rate band of / - are 15 percent. However, an exchange rate regime change was necessary for the possible accession, because of the crawling peg is not considered as "active monetary preparation " for the Euro - participation and evaluated as completely unsuitable. The Hungarian forint in the form of a crawling peg was therefore abolished on 1 October 2001 in order to meet all the other Member States the default convergence criteria and thus a band exchange rate pegged to the euro introduced.

Other examples

Botswana used a crawling peg to tie the Pula to the U.S. dollar.

Poland introduced in October 1991 on grounds of fighting inflation its currency regime by fixing the zloty to a crawling peg binding to a currency basket (45% USD, 35 % DM, 10 % pounds, 5% franc and 5% francs) to. Here, the zloty was devalued to 0.3 per cent a month by a fixed percentage of 1.8 percent (in the beginning ) ( at the end). Since April 12, 2000, the zloty is flexible.