When the value of domestic currency is tied to the value of another currency, it is called 'pegging'. Under the fixed exchange rate system, a currency is pegged to a reserve currency or to a basket of 'key' currencies. Besides, currencies are pegged also to the Special Drawings Rights (SDRs), an instrument created by the IMF. The currencies of about one third of the developing nations are pegged to a single currency, that is, either to the US dollar or to French franc. The value of a pegged currency is allowed to vary within a certain lower and upper limit.
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