A soft peg describes the type of exchange rate regime applied to a currency to keep its value stable against a reserve currency or a basket of currencies.
The main difference between soft and hard pegged currencies is that the soft peg systems provide a limited degree of monetary policy flexibility to allow governments and central banks to deal with economic shocks.
A soft peg can be applied to the reserve currency within a narrow or a wide range. The range is usually modified over time, depending on international inflation rates.
Soft peg currencies include the Venezuelan bolivar and the Hong Kong dollar (which are both pegged to the U.S. dollar).
The Chinese yuan is an interesting soft peg currency since it is softly pegged to the U.S. dollar but also considered a reserve currency,
Any kind of peg can be vulnerable to financial crises which can result in a significant devaluation or even lead institutions to abandon the peg.
Famous examples of events like these are the Argentinian crisis of 2001 of the Swiss National Bank’s decision to abandon the euro peg in 2015.