If a country pegs its currency to a foreign currency, it no longer has the ability to use monetary policy to stabilize the economy because:
A)it no longer has a central bank.
B)monetary policy must be used to keep the exchange rate's market equilibrium value at its official value.
C)banks will begin to hold 100 percent of their deposits in reserves.
D)it must eliminate its currency from circulation and replace it with the foreign currency.

Question

Quizplus · Accepted Answer

Pegging a country's currency to a foreign currency creates a fixed exchange rate. One problem with fixed exchange rates is that domestic monetary policymakers have fewer options.

If a Country Pegs Its Currency to a Foreign Currency