The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

Why Peg?

In times of distress, a nation in currency trouble, battling a government bureaucracy mired in debt, will hoist the white flag of surrender and ask for a bunch of things. Usually one of them is IMF aid.

But how do you restore a currency’s value when nothing stands under it, when everyone who holds it can’t spend it fast enough, when investors the world over don’t want to come into your country or put any investment into it, you have to get something to back you up. Or you need a bigger, richer government that is willing to foot the bill.

The easiest way to handle that is to choose a currency that does have solid value; that is, one that consumers and investors do believe in. (Often that currency is the one that runs the black market.)

In the ideal case, pegging a troubled currency will do good things. It’ll limit the expansion of the country’s money supply. That happens because the actions of a better central bank now determine policy. It’s a way to break the chain of power.

Let’s look at a few famous examples. (Keep in mind, though, these aren’t stories that end in “happily ever after.”)