Small or export-dependent economies often choose to anchor inflation by tying the valuation of their domestic currency directly to a stable foreign anchor currency (such as the US Dollar or Euro), a strategy known as Exchange Rate Targeting. [1]

Governments implement exchange rate pegs across a spectrum of structural control tiers:

[Hard Currency Board] ---> Total monetary backing; domestic supply expands only via foreign inflows
  |- [Fixed Peg Model] ----> Currency locked to anchor; defended via open market reserve actions
       |- [Crawling Pegs] --> Currency adjusted gradually using automated preset rules

While a currency peg provides immediate credibility and anchors local import prices, it eliminates the country’s independent monetary policy. The domestic central bank must match the interest rate choices of the anchor country’s central bank, leaving it unable to adjust domestic rates to manage local economic cycles. [1, 2]