Pegged Rates: Pegging occurs when one country directly fixes its exchange rate to a foreign currency so that the country will have somewhat more stability than a normal float. More specifically, pegging allows a country’s currency to be exchanged at a fixed rate with a single or a specific basket of foreign currencies. The currency will only fluctuate when the pegged currencies change.
The downside to pegging would be that a currency’s value is at the mercy of the pegged currency’s economic situation. For example, if the U.S. dollar appreciates substantially against all other currencies, the yuan would also appreciate, which may not be what the Chinese central bank wants.
Can anybody explain to me why a Central bank would NOT want its currency to appreciate against other currencies?