Which of the following factors make it difficult for emerging market economies to choose a specific currency regime?
A) weak fiscal, financial, and monetary institutions
B) the tendency for commerce to allow currency substitution and the denomination of liabilities in dollars
C) the emerging market's vulnerability to sudden stoppages of outside capital flows
D) all of the above

Question

Quizplus · Accepted Answer

All three factors listed - weak institutions, currency substitution, and vulnerability to capital flows - can make it difficult for emerging market economies to choose a specific currency regime. Weak institutions make it harder to manage monetary policy effectively and build confidence in the stability of a particular currency. Currency substitution can lead to a lack of control over the economy as foreign currencies are used more often. Finally, vulnerability to capital flows means that changes in the global financial environment can have significant effects on these economies, making it harder to maintain consistent currency policies.

Which of the Following Factors Make It Difficult for Emerging