Peg

A peg is a commitment to hold one asset's price fixed against another, such as a currency fixed to the dollar or, historically, the dollar fixed to gold at $35 per ounce under Bretton Woods. Pegs are maintained by standing ready to exchange at the stated rate, which requires reserves, and they hold exactly as long as that readiness is credible.

Why it matters

Pegs import stability and credibility from the anchor asset, which is why dozens of currencies peg to the dollar today and why Hong Kong has held its peg since 1983. But a peg is a promise standing against market pressure, and the record of broken promises is long: Britain was forced off gold in 1931 and out of the European exchange rate mechanism in 1992, the dollar's gold window closed in 1971, and stablecoin pegs have failed abruptly, most spectacularly TerraUSD's collapse in May 2022, which erased tens of billions of dollars.

In the gold vs bitcoin debate

The gold standard was history's most consequential peg, and its repeated suspension whenever governments needed spending room is the founding grievance of both hard-money camps. Gold advocates read that history as proof the metal disciplined states until they broke the link; bitcoin advocates conclude that any money requiring a promise will eventually see the promise broken, and that bitcoin needs no peg because the asset and the unit are the same thing. Stablecoins now replay the old peg dynamics on new rails, reserves, runs and all.