Stablecoins: Pros Of A Currency Transfer To A Pegged Currency Account

Stablecoins: Pros Of A Currency Transfer To A Pegged Currency Account

In many countries around the world, a fixed exchange rate regime is in force, which supports not only the stability of the local financial system but simplifies currency transfers as well.

In general, a fixed exchange rate (also a pegged exchange rate or a currency peg) means that the local currency value is pegged to the value of another currency or most often this is a currency basket. a so-called hard currency like the U.S. dollar or the euro.

From a currency transfer point of view, no foreign exchange rate will be applicable in the transfer and the recipient will receive the same amount of money, minus fees and commissions, but converted into his/her local currency.

Various types of currency pegs are known; however, it is irrelevant to the average client of money transfer services. As mentioned above, most pegged currency regimes involve the use of a hard currency as a base currency to which the local currency is pegged.

In addition, there are some countries where a foreign currency is adopted as official national currency. Experts call this process dollarisation because such a process initially involved the U.S.

The most well known cases of dollarisation are Panama, Ecuador and El Salvador where the U.S.

For a sender or a recipient sending money that will be converted into a pegged currency means that both parties will avoid conversion, assuming that the currency transfer is denominated in the same currency as the currency to which the home currency of the recipient is pegged to.

If you are sending a certain amount of euro from Germany to a bank account in Latvia, the recipient will receive the same amount converted to his/her home currency, the Latvian lat, without any losses due to foreign exchange rates. However, you cannot avoid bank fees related to the transfer.

 For example, if you are sending British pounds to Estonia it is a good idea to wait for a moment when the pound is extremely strong against the euro. This will allow the recipient in Estonia to benefit from the stronger pound and receive more euro, more money in the local currency, respectively.

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