One of the chief advantages of exchange rate pegging is that ________.

Question

Quizplus · Accepted Answer

Exchange rate pegging can help limit inflation by giving markets confidence in the stability of the currency. This can reduce the risk premium that investors require when lending money to a country, which can reduce borrowing costs and boost investment. Additionally, if a country's floating currency is appreciating too quickly, the central bank may need to intervene by buying foreign currency to keep the exchange rate within a certain range. However, this can lead to an increase in the money supply and inflationary pressures. By fixing the exchange rate, the central bank can avoid this problem and focus on controlling inflation through other means.

One of the Chief Advantages of Exchange Rate Pegging Is