Soft Peg

A soft peg is an arrangement that keeps the value of a currency close to a reference value, such as the US dollar, a basket of currencies or another asset, while allowing some flexibility. In foreign exchange, examples include a conventional peg that the central bank may adjust, an exchange rate band within which the rate can move, and a crawling peg that shifts in small steps over time. It contrasts with a hard peg, such as a currency board or the use of another country's currency, which is far harder to change. Soft pegs offer stability while keeping some room for policy, but they can attract speculative attacks when markets doubt the target, as in several emerging market crises of the 1990s. In crypto, the term describes tokens that track a target loosely, such as some algorithmic designs, and can depeg in stress. Also see currency peg.