What does a conventional peg involve regarding currency value?

A conventional peg involves fixing a country's currency value to another stable currency, typically to ensure predictability and stability in international trade and investment. By pegging the currency, the country commits to maintaining its currency's exchange rate at a specific level relative to the benchmark currency. This arrangement allows businesses and investors to have greater certainty regarding currency values, reducing the risks associated with exchange rate fluctuations.

In a pegged system, any forces that push the currency's value away from the peg will require intervention by the central bank or government to maintain the established exchange rate. This can involve buying or selling foreign reserves to uphold the peg, which distinguishes it from more flexible exchange rate systems where values fluctuate freely or are determined by market dynamics.