Some technical implications of pegging exchange rates against a basket of currencies

Summary

The paper examines the technical characteristics of an exchange rate arrangement in which a basket of currencies-as for example the SDR or the ECU-serves as a pivot of central rates. The analysis focuses first on the inter-relationship between the movement of basket currencies' market rates and the resulting changes in the value of the basket in terms of currencies. Attention is then given to special problems associated with the method of intervention, the adjustment of central rates and the temporary suspension of a currency's intervention obligation. In addition, the paper discusses briefly those elements of a basket-type exchange rate arrangement which are incorporated in the European Monetary System.