If neither changes in interest rates nor central bank intervention from the reserves can halt a depreciation/appreciation of a currency that is perceived to be not at its equilibrium exchange rate, then which of the following exchange rate regimes are viable over the longer term?

Question

Quizplus · Accepted Answer

A free-floating exchange rate regime allows the currency value to fluctuate according to the foreign exchange market. Adopting a strong foreign currency like the dollar or euro can provide stability and confidence, bypassing local monetary policy limitations. Both options are viable long-term solutions when traditional interventions fail to stabilize a currency.

If Neither Changes in Interest Rates nor Central Bank Intervention