When countries have pegged exchange rate systems,they often set up ________ to improve the credibility of the system in the eyes of the global traders.

Question

Quizplus · Accepted Answer

Currency board systems are commonly used to improve the credibility of pegged exchange rate systems. A currency board is an institution that controls a country's monetary policy by setting a fixed exchange rate and backing it with foreign reserves. This helps to reassure traders that the government is committed to maintaining the exchange rate and can provide stability to the economy. Target zone systems and futures markets for currencies are also used to manage exchange rates, but they do not necessarily improve the credibility of a pegged exchange rate system. Sterilized interventions involve buying or selling foreign currency without affecting the domestic money supply, which can be used to support a pegged exchange rate system but may not by itself improve its credibility.

When Countries Have Pegged Exchange Rate Systems,they Often Set Up