Currency pegs operate exactly like a gold standard except that the reserve asset becomes another countrys currency: AssetsLiabilities 10 Million Euro x $1.12/Euro $11,200,000 (Euro) $60,808,000 (US Currency) $49,608,000 (T-Bills) For example, if the US decided to peg to the Euro at a price of $1.12 per Euro, we would need to acquire Euro assets (either cash or Euro bonds) Reserve Ratio There is one big difference here…what is it
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