If a country sets a pegged exchange rate that is above the equilibrium exchange rate, how can the country maintain the peg?

Question

Quizplus · Accepted Answer

When a country sets a pegged exchange rate above the equilibrium rate, it means the domestic currency is overvalued. To maintain this peg, the country can buy its own currency, using its foreign reserves, to reduce the supply of the domestic currency in the market, thereby supporting its higher value.

If a Country Sets a Pegged Exchange Rate That Is