When a high degree of currency substitution exists,in order to prevent currencies from becoming too variable:
A) Central banks must not intervene.
B) Countries need international coordination of monetary policy.
C) Fixed currency rates must be adopted.
D) Exchange markets must be temporarily closed.

Question

Quizplus · Accepted Answer

When a high degree of currency substitution exists, countries need international coordination of monetary policy to prevent currencies from becoming too variable. This means that central banks need to work together to manage exchange rates and limit fluctuations in currency values. Without this coordination, currency volatility can lead to economic instability and uncertainty for businesses and investors. Fixed currency rates (C) may be a solution, but it can be difficult to maintain these rates over time, and they can limit a country's flexibility to respond to changes in the global economy. Closing exchange markets (D) is not a feasible option as it would disrupt international trade and investment. Central banks must still intervene (A), but in a coordinated manner with other countries to achieve a stable exchange rate environment.

When a High Degree of Currency Substitution Exists,in Order to Prevent