The practice of a state-controlled currency is identified as fixed exchange rates or ‘pegged’ exchange rates. Herein, the state government determines which strong currency or collective of currencies are to be matched to their own, such as the US dollar or the EU euro. Pegged exchange rates are employed to help stabilize the state’s currency by matching it with a strong currency, essentially tying the currencies. This provides stability for the state’s own currency, which in turn promotes international trade and development more effectively. An additional benefit pegged exchange rates offer is reduced exchange rate risk and accounting exposure through currency consolidation. Through reduced exchange rate risk and accounting exposure, multinational corporations are able to mitigate the risks involved in consolidating their assets. Fixed exchange rates help protect countries’ currencies from becoming less valuable due to fluctuations in the markets. With fixed exchange rates, government control is able to curb the prospect of national inflation, preserving economic conditions. If the demand for the local currency is low and the amount of currency circulating is high, the government may buy its own currency and place the amount into its reserves. This helps the currency maintain its value and safeguards it from notable changes in supply and demand. If there is not enough currency circulating through the markets, the government may choose to deplete its reserves, thereby increasing the amount circulating in the market. The caveat inherent to this practice is governments with pegged exchange rates must keep substantial reserves in order to deal with dynamic supply and demand trends.  Another downside to pegging exchange rates and tying your currency to another currency is the fact that inflation is inherent in all economies. Once a strong currency such as the U.S. is experiencing inflation, the countries whose currencies are tied to the U.S. dollar is also affected by this event. As of 2008, there are at least seventeen currencies that are pegged to the U.S. dollar.  REFERENCEhttp://www.ehow.com/about_4675892_what-currencies-pegged-dollar.html