Proponents of fixed exchange rates argue that fixed exchange rates impose monetary discipline by preventing governments from engaging in inflationary monetary policies.

Question

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Fixed exchange rates limit a government's ability to manipulate its currency value through monetary policies, such as printing more money, which can lead to inflation. By committing to a fixed exchange rate, countries must maintain a sustainable monetary policy that does not undermine their currency's value. This can lead to greater monetary discipline and stability in the long term.

Proponents of Fixed Exchange Rates Argue That Fixed Exchange Rates