True, but the history of pegged FX rates isn’t pretty. At some point during periods of volatility the entity choosing the peg must defend it, often at great cost economically. Ultimately, the peg is abandoned. The most famous examples are sterling in the ERM and of course the end of the Bretton Woods FX system when the US left the gold standard in the 1970s. Moreover, the only governments that choose pegged rates these days are autocratic regimes with questionable (or nonexistent) commitments to free markets.

By pegging to the USD or a basket of currencies, Facebook at some point will have to commit to supporting parity or it will foist the responsibility on the relevant central banks to which Coin is pegged. Either way, the initial valuation stability achieved by the peg is far from free or guaranteed because the governments themselves did not choose to create the peg and, thus, have no incentive to defend it.

Quantifying cross-border policy risk using patented tech Founder & CEO #Data #NLP #geopolitics #DigitalCurrency #PredictiveAnalytics

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store