How does a crawling peg fundamentally differ from a pegged exchange rate?
Accordingly, what is the difference between a target zone and a crawling peg?
In a target zone, the currency is allowed to fluctuate in a percentage band around a “central value.” One can view a pegged system as a target zone system with a very narrow band.
Just so, why do nations use a crawling peg exchange rate system?
Nations sometimes use crawling pegged exchange rates so as to make small but frequent exchange rate adjustments promoting payments balance. Deficit and surplus nations both keep adjusting until the desired exchange rate level is attained.
A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority with respect to a foreign currency or a basket of foreign currencies. By contrast, a floating exchange rate is determined in foreign exchange markets depending on demand and supply, and it generally fluctuates constantly.