What is anchor currency?

An anchor currency is a currency to which other countries tie the value of their own currency (exchange rate), which results in a (more or less) fixed exchange rate. This means that the value of the linked currencies is heavily dependent on the value of the anchor currency.

Examples include the Luxembourgish franc which was pegged to the Belgian franc before the introduction of the euro, and the Danish krone which has followed the euro since 1999 within a small band. The American dollar ($) is also an anchor currency for many countries.

In more recent years, we have also acquired the SDR (Special Drawing Rights) as an anchor currency. This was set up by the International Monetary Fund (IMF).