Why are pegged exchange rates often overvalued and difficult to govern

Why are pegged exchange rates often overvalued and difficult to governments to maintain?

What will be an ideal response?

ANSWER

Answer: Governments that maintain a pegged exchange rate often find the position difficult to maintain. Too often, the exchange rate overvalues the local currency on the foreign exchange markets. This situation produces a surplus supply of the local currency resulting in a mass exodus of local currency holders who will turn in the currency to the central bank for a foreign currency to invest it abroad. Since this process depletes the bank’s official reserves, the only way to maintain the peg is to impose currency controls.