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% of their deposits in reserves.
D)it must eliminate its currency from circulation and replace it with the foreign currency.

Question

Quizplus · Accepted Answer

When a country pegs its currency to a foreign currency, it must use its monetary policy tools to maintain the fixed exchange rate, limiting its ability to use those tools for other economic stabilization purposes.

If a Country Pegs Its Currency to a Foreign Currency